On Saturday it will be two years since Russia invaded Ukraine. It will also be two years of embarrassing false predictions about the Russian economy.
The GDP of Vladimir Putin's country grew by 3.6% in 2023. In the Eurozone, growth should have been 0.6%. In Brazil 3%. In the US it was 2.5%, which is excellent given America's wealth.
The previous summary of the opera is that Putin has bypassed the sanctions, can maintain the war in the short or medium term and manages to implement a plan to break away from the West.
At the beginning of 2022, the World Bank, IMF, banks and even the Russian Central Bank predicted that Russian GDP would fall by around 9% this year. The decline was 1.2%.
At the time, it was predicted that 2023 would be bad from GDP to government deficit. It was not. The IMF forecasts growth of 2.6% for 2024; Putin's Finance Ministry forecasts less: 2.1%.
It's a war economy, they say. It does affect the wellbeing of the average Russian and portends cloudy and dark days ahead when the war is over if it is over.
“When it ends”: The defense budget was 2.7% of GDP in 2021; in 2024 they are expected to reach 6% of GDP (with total public spending at around 36% of GDP). It's money to sustain a long war.
Expenditure on bombs, tanks or combat aircraft replaces expenditure on civilian private consumption, investments in civilian production capacities and infrastructure as well as in education, health and social expenditure.
After the war, some special conditions would be required to avoid a bad recession (dampened private savings and/or continued government deficit stimulation and/or sufficient trade transactions with the rest of the world).
This is short term. In the long term, the Russian economy will suffer from worse access to technology and foreign investment, even if China can fill some of the gaps.
He must be suffering from a lack of intelligence many people fled the country, from military service, from the lack of perspective on life in the Tsar's war, etc. Russian productivity is unlikely to grow.
However, Putin has circumvented sanctions imposed by the West and its allies. Trades in oil. Russian barrels are sold at a lower price than before the war, although above the cap that the West wanted to impose.
In the five years before the start of the epidemic (20152019), oil and gas revenues accounted for 40.8% of total state budget revenues.
In 2022, the first year of the war, it was 41.6% of the total (the result of the delayed tightening of sanctions and the warrelated increase in the price of a barrel). In 2023, they fell to 30.3%, the lowest level since 2006, excluding the epidemic in 2020, partly due to the fall in the price of the commodity.
The public deficit grew. But the country is leaning towards fiscal discipline Putin is, ironically, an “austericide”, so to speak. Public debt is low and amounts to about 20% of GDP.
Inflation was 11.9% in 2022 and 7.4% in 2023. Given the global famine, it was in this range. The base interest rate rose from 7.5% per year to 16% per year over the course of 2023. Bad, but this is a country at war.
Unemployment fell to 2.9% (a figure influenced by the fact that people have left the country or are at war). Average salaries are growing faster than inflation in a country where purchasing power is 80% higher than Brazil and inequality is much lower.
Yes, the economy could have problems with overheating, as their own BC acknowledges. Please note, however, that this is almost a “normal” country debate.
It seems unlikely that it will be possible to maintain living standards with continued and increasing war spending. The question is when there will be a problem. Right now, Putin literally has the gas to sustain his shoot, beat, and bomb program.