Real-time data indicate a quiet but growing economy. Russians today do not have many things to be proud of, so they accept what they can. Trolls on social media are posting footage of gas stoves that are left on full blast that is intended for European viewers. In Moscow, what may cost hundreds of euros is only a few roubles. The mocking is juvenile, but it alludes to a more serious reality: the economic conflict between Russia and the West is delicate at the moment. Russia is coming out of a recession as Europe teeters on the verge of one.
Vladimir Putin’s invasion of Ukraine prompted Western sanctions, which have hurt Russia’s long-term prospects. Forecasts indicate that denying the ninth-largest economy in the world access to foreign technology and skills has reduced its potential for growth by up to 50%.
The production of oil and gas, which is essential to Russia’s economy, is currently approximately 3% lower than it was prior to the invasion, and it could drop even more once European embargoes take effect at the beginning of the year. According to Liam Peach of the consulting firm Capital Economics, between 250,000 and 500,000 Russians left their nation in the first six months of the war. Many were well-educated and wealthy.
The plot is well known. The Federal Reserve relentlessly hikes rates in an effort to control inflation. The international economy experiences a general slowdown as the currency surges and global financial conditions tighten. But there is a twist this time. Rather than the usual emerging-markets crises, there is an unsettling quiet in place.
Fast-growing middle-income nations have been a source of financial difficulty for decades. Early in the 1980s, the Fed’s fight against double-digit inflation created a Latin American debt crisis; in the 2010s, the “fragile five” were alarmed by the normalisation of policy following the GFC (Brazil, India, Indonesia, South Africa and Turkey). During the current tightening, which is the most severe since the early 1980s, a similar outcome would have been anticipated.
A third of the world’s economies, which account for the IMF’s expectations of global growth, are expected to experience downturns, the organization cautioned in forecasts released on October 11. The most impoverished nations on earth are in trouble. More than a billion people reside in nations with severely struggling economies.
The IMF recently boosted Russia’s prospects for 2022 in its forecasts. It was predicted in April that the Russian GDP would decline by 8.5%. It now anticipates a 3.4% drop. Although nothing to brag about, this is doable. The figures do indeed indicate that Russia will be able to keep up its military spending. A draught of the government’s 2024–25 budget was released in September.
It means significant rises in war-related spending in the upcoming years, particularly on domestic “security,” according to Elina Ribakova of the Institute of International Finance, a business group. After avoiding an economic meltdown, Mr. Putin plans to increase his bets both domestically and internationally.
Russians today do not have many things to brag about, so they accept what they can. Trolls on social media are posting footage of gas stoves that are left on full blast that is intended for European viewers. In Moscow, what may cost hundreds of euros is only a few roubles.
The mocking is juvenile, but it alludes to a more serious reality: the economic conflict between Russia and the West is delicate at the moment. Russia is coming out of a recession as Europe teeters on the verge of one.
A new economic blow has been caused by Mr. Putin’s recent decision to start a partial mobilization. It led to a minor bank run as people once more expressed concern for the nation’s future. According to our calculations, Russians withdrew rouble deposits totaling $14 billion in September, or about one-third as much as in February. About 300,000 more Russians have most likely left.
Inflation is exacerbated by shortages, which are getting worse as the labor force continues to shrink. Although headline inflation is far lower than it was at its high, the pricing squeeze in the labor-intensive services sector is getting worse.
Despite these issues, the recession is likely over at this point. Many people cast skepticism on official GDP figures, yet a feeling of activity may be gleaned from a variety of sources. A bank called Goldman Sachs creates a “current-activity indicator” that tracks the health of economies month to month. According to the data, Russian activity is more vibrant than that of other major European nations (see chart).
Following the mobilization edict, a spending measure created by Sberbank, another bank, stumbled but has since eked out a gain. The auto industry’s output, which had almost completely decreased a few months prior, has also recovered, indicating that manufacturers have acquired supplies from sources other than the West. Russia currently very definitely imports more items per month than it did on average last year.
DO FOLLOW: As Europe falls into recession, Russia climbs out
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