A year ago, Russia started its war against Ukraine. The severe economic crisis initially expected as a result of Western sanctions has so far failed to materialize. However, the once-booming emerging market faces a myriad of problems. Below is an overview of how the Russian economy is currently doing.
ECONOMIC GROWTH
In the first year of the war, 2022, the gross domestic product (GDP) shrank by 2.2%. Some experts had expected a drop of at least 10% due to Western sanctions. However: well-known experts such as the head of the Wifo, Gabriel Felbermayr, doubt the authenticity of the Russian information. The economist said only on Thursday that he had doubts that last year’s drop was just 2.2 percent. A war economy also always inflates the gross domestic product – while much of the output, like rockets, burns up on the battlefield, according to Felbermayr.
According to the central bank, the Russian economy, which has lived with sanctions for years, quickly adapted to the new situation. The International Monetary Fund (IMF) predicts a mini-growth of 0.3% for this year, which will be followed by an increase of 2.1% in 2024.
According to the forecast by rating agency Scope, the deficit is expected to rise to 3.5 percent of gross domestic product this year. The Russian economy will not return to pre-invasion levels until the end of the decade. With the help of the central bank, the Kremlin used the temporarily high export earnings to cushion the immediate fallout from the war and Western sanctions on the domestic economy. “But the long-term outlook has deteriorated,” says Levon Kameryan, an analyst at Scope. Therefore, it will likely take the Russian economy until about 2030 to return to pre-war levels.
STATE’S BUDGET
Due to high spending on weapons and collapsing revenues from energy exports, Russia is once again heading into a national deficit this year. It should not be more than two percent of GDP, says Finance Minister Anton Siluanov. Experts are more skeptical, as January alone saw a deficit of nearly $25 billion, in part due to falling oil and gas revenues. That has led analysts to project a budget deficit of up to 5.5 trillion rubles ($70 billion) for the full year. This would correspond to 3.8% of GDP – almost twice as much as planned. Russia is already selling 8.9 billion rubles of foreign exchange a day to help cover the deficit. The government is also considering a one-time “voluntary” tax on large companies, which could pour around 300 billion rubles into state coffers.
INFLATION
Average inflation was 11.9 percent last year, nearly triple the central bank’s 4 percent target. For the current year, she expects an inflation rate of 5% to 7%, before the 4% target is hit again next year. In mid-February, the inflation rate was 11.6%. Russian consumers regularly cite inflation as their top concern. Most have no savings after a decade of economic downturn and rising prices have slashed living standards across the country.
UNEMPLOYMENT
The official unemployment rate was 3.7% in December – a record low. Senior government and central bank officials have repeatedly expressed concerns about the job market after President Vladimir Putin ordered a “partial mobilization” of working-age men into the war against Ukraine in late September 2022. thousands of Russians fled the country, while about 300,000 were drafted into the army. This has accelerated negative demographic trends, “in particular the decline in the working-age population,” according to the Scope ratings agency. (Portal)