Even the Kremlin's official forecasts are not so optimistic.
The International Monetary Fund (IMF) has just significantly revised upwards its economic forecasts for Russia in 2024, from 1.1% to 2.6% (compared to a maximum of 1.5% for the Russian Central Bank).
These new estimates come as the Russian economy has recovered earlier than expected, with a rebound in 2023 estimated at around 3%, where many economists were still predicting a recession.
Also read: Russia's growth boosted by military spending
“GDP should increase by at least 3.5% this year (in 2023 Editor’s note)
,” boasted Vladimir Putin during a business forum in December.
A shame, given that Moscow is targeted by one of the strictest sanction regimes in history.
But while the ruble is falling and the federal budget is plunging into the red, growth and revenues have nevertheless exceeded their pre-war levels.
“I think the IMF is impressed by the resilience of the Russian economy and is improving its own prognosis by predicting the continuation of two factors: that of military spending at a high level which stimulates overall consumption and stable prices for Russian hydrocarbons, therefore significant budgetary revenues
,” analyzes Tatiana Kastoueva-Jean, director of the Russia-Eurasia center at Ifri.
The epicenter of growth lies in industry.
The state has invested heavily in the military-industrial complex.
Between 35% and 50% of the growth - depending on the sources - can be explained by the production of orders linked to the war.
The manufacturing industry is accelerating.
The war economy and increased public spending helped support household incomes.
Real wages (therefore deducted from inflation) increased by 13.3% in May 2023 over one year, according to Russian economist in exile Vladislav Inozemtzev, author of an article in
Foreign Policy.
Enough to maintain consumption even if strong disparities exist.
The Kremlin has also distributed support to the families of soldiers on the front and defense workers, aid which affects between four and five million households.
Circumvention of sanctions
Sales of crude oil and petroleum products, the heart of the Russian economic model, have continued.
Although these have fallen by 93% to the European Union since 2021, other countries have replaced them.
India, which has increased its purchases of Russian oil 14-fold, now buys, with China, between 80% and 90% of crude exports.
On this point, Western sanctions have had only a limited effect, with Russia having managed to circumvent the cap at $60 per barrel.
“Result: the loss of oil revenues recorded by Russia in 2023 is only 14%, and exported volumes have remained stable
,” says economist Hubert Testard in a recent article.
An important market for manufactured goods, Russia has also managed to replace Western high-tech and consumer products by also turning to China or other Asian countries, while combining its supplies with unauthorized imports via various intermediaries. like Turkey.
“
The trio of China, India and Turkey has enabled the Kremlin's exports to generate 130 billion dollars in two years
,” notes the economist, almost enough to compensate for the fall in sales from Russia to the 27 countries of the EU, US, Japan and South Korea ($139 billion).
Regarding raw materials, Russia has consolidated its strategic place in the international economy.
“Russian resources are essential to global industries, including Western ones, aluminum, titanium, not to mention wheat and food products
,” notes Tatiana Kastoueva-Jean.
The country exported 59 million tonnes of cereals between July 2022 and June 2023, and is expected to export 61 million tonnes next season.
The leading fertilizer producer, Moscow has almost restored its export levels after a fall of 22% in 2022.
An overheating economy
Domestically, Russian private companies escaped sanctions, established new partnerships inside and outside the country, and continued to support employment throughout the war.
The departure of Western companies has freed up market share for Russian entrepreneurs.
“In the first quarter of 2023, the net increase in the number of registered commercial enterprises exceeded the 50,000 mark, with the number of individual entrepreneurs under the age of 35 increasing by 40%
,” writes Vladislav Inozemtzev.
The financial sanctions themselves have had only a limited impact: the amount of frozen assets of the Central Bank of the Russian Federation (around $300 billion) is the same as Russia's trade surplus in 2022. Furthermore, the yuan has replaced the dollar and the euro to serve Russian foreign trade.
The fact remains that, with high inflation, soaring defense spending (+70% planned for 2024), interest rates at 16% and maximum use of production capacities, the Russian economy is overheating.
If political opponents are muzzled, this is not the case for economists' criticisms.
The director of the Central Bank herself, Elvira Nabioullina, whose skills are respected by her foreign peers, warned a few weeks ago that in this situation
“we can go very high, but not for long.”
The loss of human capital - a million qualified executives are said to have left the country - could, in the long term, cost Russia more than the financial losses caused by the war, warns Vladislav Inozemtzev.
For the moment, labor shortages are pushing up wages, but this will not last.
“By the end of the 2020s, the country will lose a significant portion of its pre-war industrial capacity, with GDP that could contract by 10% to 15% before the end of the decade.”