How’s Russia’s Economy Actually Doing?

Summary

The video explores the Russian economy's surprising resilience despite sanctions, with GDP growth outperforming expectations. Factors such as military spending, increased wages, and low unemployment contribute to this unexpected performance. However, challenges like a tight labor market and rising inflation hint at potential future economic strains. The video also discusses Russia's fiscal space and the sustainability of its economic strategy amid the ongoing conflict in Ukraine.

Takeaways

• 📊 Russia's official economic data is considered broadly accurate by financial institutions like the IMF and the World Bank, despite some skepticism and incomplete data.
• 📉 According to the Russian statistical Authority (rosstat), Russia's GDP declined by 1.2% in 2022 but rebounded with 3.6% growth in 2023.
• 🚀 The IMF forecast indicates that Russia's economy is expected to grow faster than other developed economies, including those in Europe and the US, with a 3.2% growth rate this year.
• 💰 Russia's economic growth has been significantly driven by a surge in military spending, projected to increase by about 70% in 2024.
• 💼 The increase in military spending has contributed to a reduction in economic inequality, with poorer regions and blue-collar workers experiencing the sharpest rise in real income.
• 📈 A tight labor market in Russia has led to a rise in wages and a record low unemployment rate of 2.6%, boosting domestic demand.
• 💡 Inflation in Russia has been lower than initially expected, falling from a peak of 17.8% in April 2022 to 2.3% a year later.
• 🌐 Russia has managed to find substitutes for many sanctioned imports, particularly from China, which has helped it to mitigate the impact of sanctions.
• 💪 Prior to the war, Russia was in a strong fiscal position with low national debt and significant reserves, allowing it to increase spending to fund the war effort.
• 📈 The Russian government has introduced new taxes to increase revenue, including a progressive income tax and an increase in corporation tax, expected to bring in an additional $300 billion over six years.
• ⏳ There are early signs that Russia's resources may be dwindling, with a rise in recruitment costs and inflation, suggesting potential strain on its labor market and fiscal space.

Q & A

How is Russia's economy performing according to the Western and Russian media?

There is an emerging consensus in both Russian and Western media that Russia's economy has drastically outperformed expectations, suggesting that the Kremlin is well placed to fight a long attritional war in Ukraine.

What claims do Western politicians make about Russia's economic performance?

Western politicians claim that Russia is lying about its economic performance and argue that sanctions are working effectively, calling for more sanctions on top of those already imposed.

Why should Russia's official economic data be taken with caution?

Russia's official economic data should be taken with caution due to its incompleteness and potential manipulation, as the Russian statistical Authority, Rosstat, stopped publishing some data series after the invasion began and different parts of the Russian State sometimes give conflicting numbers.

According to Rosstat, what was the change in Russia's GDP in 2022 and 2023?

According to Rosstat, Russia's GDP declined by 1.2% in 2022 but returned to growth in 2023, with the GDP growing by 3.6%.

What does the IMF forecast for Russia's economic growth in the current year?

The IMF forecasts that Russia's economy will grow by 3.2% in the current year, which is faster than any other developed economy, including European economies and the US.

How has military spending impacted Russia's economic growth?

A significant portion of Russia's economic growth has been driven by military spending, which is expected to grow by about 70% in 2024 and account for nearly a third of the federal budget.

What is the effect of increased military spending on economic equality in Russia?

Increased military spending has led to a marked decline in economic equality in Russia, as most of the new spending has gone to blue and gray collar workers in poorer regions, resulting in steep rises in real income for poorer workers.

How has the tight labor market in Russia affected wages and unemployment?

The tight labor market in Russia has pushed wages up across the board, with real wage growth at nearly 6% last year and unemployment falling to a record post-Soviet low of 2.6%.

Why was inflation in Russia lower than expected after the sanctions were imposed?

Inflation in Russia was lower than expected because, despite a brief spike when it reached 17.8% in April 2022, inflation fell relatively quickly, bottoming out at 2.3% a year later, possibly due to clever interventionist monetary policy from the Central Bank.

What factors contributed to Russia's strong position to wage war under sanctions?

Russia's strong position to wage war under sanctions is attributed to its stockpiles of old Soviet-era weapons, a large pool of poor unemployed men who could be mobilized, and significant fiscal space due to low pre-war spending and borrowing, as well as low national debt.

What evidence suggests that Russia's resources might be running out?

Tentative evidence suggesting Russia's resources might be running out includes a steep increase in the cost of recruitment contracts, the Kremlin doubling the presidential payment for new recruits, and a recent rise in inflation to nearly 9%, indicating a tight labor market and higher wages.

How has Russia managed to increase its tax revenues to fund the war?

Russia has managed to increase its tax revenues by introducing a new progressive income tax ranging from 15 to 22% and an increase in corporation tax from 20% to 25%, which are expected to bring the state an additional 28 trillion rubles (about $300 billion) over the next six years.