Even two years after the military invasion of Ukraine, the Russian economy remains the subject of intense debate and much uncertainty.
Even the world's major media companies seem disgruntled. Portal reports that Russian GDP growth is based on military spending and therefore masks broader economic problems. At the same time, the Financial Times highlights “the surprising resilience of the Russian economy.”
Currently, the uncertainty that exists in the international community about Russia's current situation seems undeniable. For some, the ongoing process is a transition to a free Western economy and then to a prosperous economy. For others, after sanctions and separation from the West, the Russian economy is now in survival mode, with military production at the forefront.
Nevertheless, based on factbased analysis and sustained forecasts, the Russian economy appears unexpectedly solid.
Portal reports that Russia's GDP in 2023 recovered from the contraction in 2022 with growth of 3.6%. It is also true that this achievement was supported by the increase in military spending. Compared to the EU and the Eurozone, these blocs “grew” by a modest 0.5% last year.
The IMF expects the Russian economy to grow by 2.6% in 2024. This is faster growth than expected for all G7 economies and even higher than the 2.3% forecast by the Russian Ministry of Economy itself.
From the perspective of Russian economists interviewed by Portal, there are two issues that will pose serious difficulties for the Russian economy from now on.
The first problem is Russian GDP. According to the analysis of economists surveyed by Portal, the growth of Russia's GDP is illusory. The Russian Center for Macroeconomic Analysis and ShortTerm Forecasts attributes more than 60% of the increase in Russian industrial production in the last two years to the conflict in Ukraine. All this industrial production eventually explodes or reaches its intended purpose in Ukraine. Therefore, most of Russia's gross domestic product over the past two years has not brought any benefit to the Russian civil economy. The only benefit arising from this process is shortterm: industrial production will create jobs.
However, according to economists surveyed by Portal, the second biggest problem for the Russian economy may also be employment. While unemployment has reached a historic low of 2.9%, hundreds of thousands of Russian citizens have joined the armed forces or fled Russia over the past two years.
According to Portal, 300,000 troops were mobilized into the Russian army in 2022. An additional 490,000 were recruited in 2023. However, at least as many fled the country to avoid active involvement in the conflict.
At this stage, many companies are forced to work consecutive and uninterrupted shifts to respond to the Kremlin's instructions. Russia's work capacity utilization reached a new alltime high in the last quarter of 2023: 81%.
As the military crisis in Ukraine continues, reductions in available manpower will begin to dictate the rules in Russia, which necessarily appears to be a priority for the military industry. The activities of the nonmilitary sectors of the Russian economy are likely to be increasingly restricted.
Private consumption should be heavily penalized. The need to increase imports in relation to some consumption areas will therefore become increasingly clear. In this specific context, there is no doubt that the sanctions had an impact as they effectively restricted access to international markets. In the short and medium term, this situation will increasingly have a greater impact on private consumption in Russia.
Ultimately, despite all the arguments, the current situation in Russia continues to raise more doubts than certainties. While on the one hand the Russian economists surveyed by Portal do not see the “current economic growth as sustainable or qualitative,” other parties such as the Financial Times emphasize the “surprising resilience of the Russian economy.”
Russia will strategically restructure its economy and reorient it entirely towards Asia and other regions sufficiently independent from the West. Moscow now channels 90% of its oil exports to China and India. We must not forget that these two economies have virtually unlimited growth potential.
On the other hand, Russia is part of the BRICS bloc and chairs it. He took over as chairman of the group in 2024. With the accession of five new member states this year, this group of countries is now significantly stronger.
Russia is also one of the allied members of OPEC+. With the accession of Brazil in 2024, this country organization now has more power than ever before.
From this scenario, it seems possible to conclude that Russia is pursuing a carefully planned economic restructuring strategy, focusing on Asia and other regions and partnerships such as the BRICS and OPEC+ blocs. Moscow's goal is to quickly eliminate remaining economic dependence on the West.