How Russia’s Economy Has Defied Predictions Following the Ukraine Invasion
By In February 2022, Russia's invasion of Ukraine had reverberations around the globe.[0] The Russian invasion of Ukraine not only caused destruction but also had an impact on global energy markets.[0] Despite early predictions, the Russian economy has not collapsed as a result of the Western trading freeze.[1] Russia's Central Bank's interventions in a timely manner, the revenues from energy exports that still remain, and the shift towards new markets have served to cushion the impact.[1]
The World Bank, International Monetary Fund and OECD anticipate that, in a most favorable situation, Russia's GDP will fall by 2.2% in 2022 and up to 3.9%, with a further decrease likely in 2023. The Institute for International Finance (IIF) predicted a 15% fall in Russian GDP in 2022 while JP Morgan envisaged a 12% contraction. Privately, technocrats in Russia cautioned Putin that there could be a potential 30% decrease.[2]
There are a couple of reasons for this being true[3] Importing to the coasts is typically more cost-effective than domestic production. Oil can vary in form when extracted from the earth; it can be sweet or sour, and it can be heavy or light.[3] It may be more economical to import goods from overseas rather than relying on domestic production. U.S. oil prices are inevitably affected by the state of the global oil market.[3]
The IMF estimates that the Russian economy contracted by 2.2 percent in 2022; for 2023, a growth rate of 0.3 percent is forecast, while for 2024, the IMF now forecasts growth of 2.1 percent. The IMF has revised its forecasts significantly higher than before.[4] Despite this, Russia is now forecast by the International Monetary Fund to grow faster in 2023 and 2024 than the UK.[5]
A larger portion of the Russian economy is being allocated to its defense industry.[4] The federal government's spending on military activities rose to a minimum of 5 percent of the country's gross domestic product (GDP), totaling approximately $90[4] The transparency of the budget in Russia has been reduced, meaning that the actual expenditure could be greater than what is reported.[4] The Kremlin has mandated that regional and local authorities utilize their resources to provide draftees with necessary military supplies.[4] In spite of record high oil and gas revenues in 2022, Russia's budgetary situation has gone from a 1 percent surplus to a 2 percent deficit.[4]
Vyugin, a seasoned Russian banker and economist, described the sanctions as “less a knockout blow than a light jab.[6]”[6]
0. “The impact of Russia's war in Ukraine on energy markets” Newswise, 14 Feb. 2023, https://www.newswise.com/articles/the-impact-of-russia-s-war-in-ukraine-on-energy-markets
1. “Western sanctions didn’t stop the war. Were they worth it?” POLITICO Europe, 20 Feb. 2023, https://www.politico.eu/article/western-sanction-russia-ukraine-war-trade-energy/
2. “The sanctions war against Russia: a year of playing cat and mouse” The Guardian, 21 Feb. 2023, https://www.theguardian.com/world/2023/feb/20/sanctions-war-russia-ukraine-year-on-vladimir-putin
3. “Ask the Expert: The Russia-Ukraine war's impact on energy markets” IU Newsroom, 20 Feb. 2023, https://news.iu.edu/live/news/28140-ask-the-expert-the-russia-ukraine-wars-impact-on
4. “Russia's War Economy and the Impact of Sanctions on Military Production” IP Quarterly, 15 Feb. 2023, https://ip-quarterly.com/en/russias-war-economy-and-impact-sanctions-military-production
5. “Russia’s economy is expected to outpace the economy of every G7 country next year. Why the West’s sanctions have been almost useless” Toronto Star, 11 Feb. 2023, https://www.thestar.com/business/opinion/2023/02/11/how-the-wests-sanctions-blitzkrieg-has-had-little-effect-on-russia.html
6. “Putin’s War to Lop $190 Billion Off Russia's Economy in Delayed Reckoning” Yahoo Canada Finance, 17 Feb. 2023, https://ca.finance.yahoo.com/news/putin-war-lop-190-billion-050000269.html
