/ world today news/ In 2023, Russia showed record GDP growth in recent years. This seems even more impressive because only a year and a half ago, many respected analysts predicted the economic collapse of our country. What measures have helped Russia not only to contain external attacks, but also to achieve economic growth?
By the end of 2023, the growth of the Russian economy may reach 3%. Prime Minister Mikhail Mishustin gave this estimate of GDP in early December. “Gross domestic product growth in October on an annual basis is about 5%. Based on the results of ten months – 3.2%. And by the end of the year, we expect about 3%,” the head of government pointed out. Mishustin noted that “the sanctions imposed by the collective West did not lead to the collapse of our economy, as they expected.”
However, the predictions of the head of government may turn out to be even too cautious. “The most important indicator of economic growth is the growth of the gross domestic product until the end of the year, which is expected to be 3.5%. This is a good indicator,” Russian President Vladimir Putin said on December 14. “This means that we have recovered from last year’s decline and have taken a rather serious step forward,” he added.
The bad predictions did not come true
And indeed, immediately after the introduction of large-scale Western sanctions, authoritative foreign structures predicted a significant decline in Russia’s GDP. The most optimistic forecast was issued by the IMF – there they believed that the Russian GDP in 2022 will fall by 8.5%.
Other Western analysts made even more gloomy forecasts: for example, Barclays and Goldman Sachs predicted a decline of 12.4%. The Central Bank of the Russian Federation largely agreed with them, forecasting a contraction of the Russian economy of 8–10% in April 2022. And although in reality at the end of 2022 the decline in Russian GDP was only 2.1%, in the West it was believed that the decline would continue in 2023. A decline of 3.6% was predicted in October 2022, for example. by World Bank experts.
In fact, as you know, everything happened just the opposite. The Russian economy confidently increased its speed in 2023, growing in some months by 4.9–5.5% (on an annual basis). Russia managed to achieve this in many ways, but among them it is worth highlighting three of the most important.
How the economy survived
First, the oil price ceiling devised by the West to take away Russian export earnings has not worked. “We sell oil, we sell it, no matter what, at higher prices,” says the Russian Foreign Ministry on this matter.
Of course, without agreements with friendly countries, a decrease in Russian oil exports would be inevitable (and therefore economic losses). But India, China and even at certain periods Saudi Arabia started buying our oil, which allows us to maintain export earnings.
A system was established for mutual payments in national currencies, which allowed to avoid the control of these transactions by the Financial Intelligence Unit of the US Treasury Department.
The second important element that provided the possibility of economic growth was the mechanisms of parallel imports. As Prime Minister Mikhail Mishustin stated, “this approach will ensure the supply of goods to Russia, including despite the unfriendly actions of foreign politicians.” So it happened. The West immediately recognized the effectiveness of this measure, calling it a “headache for global brands.”
But all this may turn out to be just a way to ease the situation of the Russian economy, and not a recipe for economic growth. The main thing – and this is the third – is that the Russian government was able to find investment. In other words, money, the lifeblood of the economy. Without investment, growth would not be possible. This is a fundamental point and it is worth dwelling on it in more detail.
New opportunities for growth
From the point of view of Western experts, in a “normal economy” it would be impossible to ensure investment growth due to large-scale capital outflows. And this outflow was to be guaranteed by the departure of Western investors from Russia and the flight of some Russian businessmen.
In addition, the departure of wealthy Russians and the mass layoffs of workers at the enterprises of global brands that left Russia should have caused a serious drop in demand, and this would have worsened the economic downturn. Freezing foreign assets was supposed to deprive both the government and Russian business of financial reserves. Sanctions against Russian banks were supposed to prevent them from attracting money from global financial markets.
But that scenario was thwarted by the actions of the Russian government.
Timely countermeasures against investors from unfriendly countries forced them either to sell their assets in Russia at a large discount or to come up with schemes to transfer the business to the former top managers. But most of these assets went to Russian investors. As a result, there were almost no plant shutdowns, meaning no major layoffs.
In turn, the release of niche markets has created opportunities for local businesses. Many of them began to increase production. Only in the first half of 2023, the growth of industrial production in Russia amounted to 2.6% on an annual basis. Mechanical engineering, furniture manufacturing, electronics, the automotive industry and many others jumped by tens of percent.
In the absence of foreign investors, the government directed public investment to key sectors of the economy. The funds of the National Welfare Fund have been used in those projects, the realization of which cannot be postponed until some favorable future, in which the investor will come of his own free will.
First of all, the objects of state funding were the defense industry and the production of dual-use products, as well as key links in production chains that are crucial for ensuring technological independence. All these are, as a rule, products with a high share of added value and a large number of subcontractors, so the injection of budget money into these niches has a multiplier effect.
Government investment in infrastructure projects also played a role. It is about, for example, the organization of the Northern Sea Route for year-round navigation, the construction of new railway lines. The development of pipeline transport has had an effect, creating prerequisites for the development of energy-deficient areas. State orders for the restoration of liberated territories had a stimulating effect on the construction industry.
Finally, payments to CBO participants not only increased demand from their families, but also triggered a chain reaction of wage growth in many sectors of the labor market. Thus, a significant increase in the wages of drivers of transport and road construction equipment was observed.
At the same time, the increase in government spending did not provoke an acceleration of inflation. The observed rise in prices is in most cases due to the weakening of the ruble (for imported goods). In addition, increasing the level of monetization of the economy creates additional conditions for its growth. And the latest forecasts for the prospects of the Russian economy today sound completely different: the Ministry of Economic Development believes that in 2024-2025 GDP growth will be 2.3%, and in 2026 – 2.2%.
Translation: V. Sergeev
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