2024-03-12 16:02:33
Entering recession in 2022, the Russian economy experienced a significant rebound the following year, recording 3.6% growth, far ahead of that of the euro zone. A performance boosted by the war effort, praised by Vladimir Putin despite sectoral difficulties and persistent inflation.
It’s an electoral race without suspense for the master of the Kremlin. From March 15 to 17, the first round of the presidential election will be held in Russia, which should confirm the victory of Vladimir Putin for a fifth term.
In recent weeks, the Russian president has once once more castigated the “failure” of the Western sanctions which have been raining down on his country since the start of Russia’s large-scale invasion of Ukraine.
“We have growth and they have decline,” he quipped during a recent speech in Moscow, comparing Russian performance to that of Ukraine’s allied countries.
After a year of recession in 2022, Russia recorded sustained growth in 2023, defying the predictions of many experts. This reached 3%, the IMF said at the end of January, which consequently increased its growth forecast for the Russian economy from 1.5 to 2.6% for the year 2024.
At the beginning of February, the national statistics agency, Rosstat, reassessed the growth of the economy at 3.6% for the year 2023.
“It is interesting to note that Russian growth has defied the most optimistic forecasts, including those of its own institutions” underlines Igor Delanoë, deputy director of the Franco-Russian Observatory.
War effort and hydrocarbon income
This rebound in the Russian economy comes in a context of a massive increase in public investment, and in particular military spending. The Russian state plans to increase the defense budget to $119 billion for the year 2024, an increase of almost 90% compared to that of 2021.
In addition to expenses linked to arms production, the war in Ukraine boosted several industrial sectors. This is the case for construction – with the fortification lines built by the Russians in eastern Ukraine and south-west Russia – or even the manufacturing industry, explains Julien Vercueil, specialist economist of Russia and lecturer at the National Institute of Oriental Languages and Civilizations (Inalco).
“Companies in the military-industrial complex have been operating at full capacity since February 2022. To facilitate recruitment, the workers concerned have been exempt from mobilization. Wages have also increased, favoring household consumption, which has been one of the driving forces of Russian growth” he analyzes.
At the same time, Russia continues to benefit from the rent linked to oil and gas.
“Although down from their 2022 peaks, world hydrocarbon prices remained high, which allowed Russia, despite sanctions, to garner strong export revenues,” underlines Julien Vercueil.
The world’s third largest exporter of oil, following the United States and Saudi Arabia, and second largest producer of natural gas, the country still recorded a 24% drop in its hydrocarbon revenues in 2023 compared to the year. previous due to Western sanctions and the drop in exports to Europe. Russia expects a return to normal in 2024, claiming to have since redirected its exports towards China and India.
04:46 The barrel of Brent is moving around 83 dollars per barrel this Monday, very far from Saudi Arabia’s target of 90 dollars. ©France 24
Ineffective sanctions?
At the end of February, on the second anniversary of Russia’s full-scale invasion of Ukraine, the European Union, the United States and Canada announced a new round of sanctions once morest Moscow. This is the thirteenth imposed by the EU since February 2022. The publication a few weeks earlier by the IMF of global growth figures revived the debate on the effectiveness of these measures.
Because if the United States grew by 2.5%, the euro zone posted an average of 0.5%, weighed down by the entry into recession in 2023 of its largest economy, Germany.
“The economic situation of European countries cannot be analyzed solely through the prism of its relationship with Russia. But it is true that the decision to cut off Russian gas hit Germany hard, which was very dependent on it and this affected the economy of the euro zone”, analyzes Igor Delanoë.
Compared to Russian growth, these figures seem to prove Vladimir Putin right when he says that sanctions do more harm to their authors than to his country. Julien Vercueil affirms for his part that this impression is misleading.
Western sanctions targeting the Russian banking and financial system, the embargo on electronic components and even the capping of the purchase prices of Russian oil and petroleum products “have had a significant impact on the Russian economy”, he emphasizes.
“Like all economic sanctions in history, Western sanctions have also induced adaptation behaviors on the part of affected Russian economic entities. But Russia was much more affected by the immediate effects of the sanctions than Europe: “We can estimate that two years of strong growth have been lost for Russia and the effects of sanctions are not over.”
Upheaval of the economic landscape
Among these effects are inflation. Its average rate rose to 7.4% in January 2024, according to Rosstat, compared to 2.8% in the euro zone. This surge in prices, particularly strong for certain consumer goods such as beef or chicken, has caused a rush on eggs in recent months, whose prices have in turn exploded, forcing the government to take measures.
On the industrial level, certain sectors such as the automobile industry are still at a standstill, hit hard by the blocking of exports of electronic components. Others, like agriculture, face serious labor shortages. An endemic problem in Russia which has greatly increased since the large-scale invasion of Ukraine, with the military mobilization and the exodus of several hundred thousand Russians.
“Overall, the growth figures are of course satisfactory for the Russian authority but it is very unevenly distributed” underlines Igor Delanoë. “Regions that are home to military-industrial complexes find themselves very privileged. This is the case of Moscow, Leningrad and even contiguous areas of Ukraine in the southwest, some of which are experiencing double-digit growth. D “other industrial regions are left behind, such as Kaluga where the planned takeover of automobile factories by the Chinese is not yet effective.”
At the end of February, during his annual speech to both houses of Parliament, Vladimir Putin revealed his vision for his country, in the run-up to the presidential election. He announced a massive investment plan, over a period of six years, focused on infrastructure. He also set as priorities the reduction of imports as well as the revival of the birth rate, which is at half mast. Finally, he paid vibrant tribute to the citizens involved in the war effort, described as the country’s “true elite”, and promised soldiers priority access to training.
“The State, in this war, is gaining a foothold in new areas of the national economy and tends to play a broader role than before” explains Julien Vercueil. For the expert, the ability of the Russian state to support this effort depends on its financial resources, and in particular on the evolution of the price of oil, but also on the involvement of these citizens in the long term. “The economy is certainly mobilized by the war effort, but civilian production also plays a role in this mobilization. The political support of the majority of the population for the war and its leader is an important factor, including the economic point of view.
1710263772
#years #largescale #war #Ukraine #invincible #Russian #economy