In 2023, Russia showed record GDP growth in recent years. This looks all the more impressive because only a year and a half ago, many reputable analysts predicted our country's economic collapse. 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%. This estimate of GDP in early December was given by Prime Minister Mikhail Mishustin. "The growth of gross domestic product in October in annual terms amounted to about 5%. According to the results of ten months – 3.2%. And by the end of the year we expect about 3%," the head of government said. Mishustin noted that "the sanctions imposed by the collective West did not lead to the collapse of our economy, as they expected."
However, the forecasts of the head of government may even be too cautious. "The most important indicator of economic growth is the growth of gross domestic product by the end of the year is expected to be 3.5%. This is a good indicator," Russian President Vladimir Putin said on December 14. "This means that we have recouped the fall of last year... and have made quite a serious step forward."
The bad predictions did not come true
Indeed, immediately after the introduction of large-scale Western sanctions, reputable foreign structures predicted a significant decline in Russia's GDP. The IMF gave the most optimistic forecast – they believed that Russian GDP would fall by 8.5% in 2022.
Other Western analysts made even more gloomy predictions: for example, Barclays and Goldman Sachs Group predicted a drop of 12.4% at once. The Central Bank of the Russian Federation largely agreed with them; in April 2022, it predicted a decline in the Russian economy by 8-10%. And although in reality, by the end of 2022, the reduction in Russian GDP was only 2.1%, in the West it was believed that the recession would continue in 2023. A 3.6% drop was predicted, for example, in October 2022 by World Bank experts.
In fact, as you know, everything went exactly the opposite way. The Russian economy steadily increased its turnover in 2023, growing by 4.9–5.5% in some months (in terms of annual figures). Russia has managed to achieve this in many ways, but among them it is worth highlighting first of all three most important ones.
How the economy has resisted
Firstly, the oil price ceiling invented by the West to take away Russian export earnings did not work. "We sell [oil], we sell, regardless [of anything], at higher prices," the Russian Foreign Ministry said in this regard.
Of course, without agreements with friendly countries, a reduction in Russian oil exports would be inevitable (and therefore economic losses). But India, China, and even in some periods Saudi Arabia began to buy our oil, allowing them to save income from exports.
A system of mutual settlements in national currencies was created, which made it possible to avoid control of these transactions by the Financial Intelligence Department of the US Treasury.
The second important element that provided the opportunity for economic growth was the mechanisms of parallel imports. As stated by Prime Minister Mikhail Mishustin, "such an approach will ensure the supply of goods to Russia, including in spite of the unfriendly actions of foreign politicians." And so it happened. The West immediately recognized the effectiveness of this measure, which was called a "headache for global brands."
But all this could only be a way to ease the situation of the Russian economy, but not a recipe for economic growth. Most importantly, and thirdly, the Russian government has managed to find investments. In other words, money is the blood of the economy. Without investments, no growth would be possible. This is a fundamental point, and it is worth dwelling on 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 outflow. And the withdrawal of Western investors from Russia and the flight of some Russian businessmen were supposed to guarantee this outflow.
In addition, the departure of wealthy Russians and the mass layoffs of employees of enterprises of global brands that left Russia should have caused a serious decrease in demand, and this would have aggravated the economic downturn. The freezing of 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 this scenario was thwarted by the actions of the Russian government.
Promptly taken countermeasures against investors from unfriendly countries forced them either to sell their assets in Russia at a big discount, or to invent schemes to transfer business to former top managers. But most of these assets went to Russian investors. As a result, there were almost no shutdowns of enterprises, which means that there were no serious staff reductions.
In turn, the liberation of market niches has created opportunities for domestic enterprises. 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% in annual terms. Mechanical engineering, furniture manufacturing, electronics, the automotive industry and much more have soared by tens of percent.
In the absence of foreign investors, the Government has directed public investments into key sectors of the economy. The funds of the national welfare Fund were used in those projects, the implementation of which cannot be postponed until some favorable future in which the investor will come by himself.
First of all, the objects of state financing were the defense industry and the production of dual-use products, as well as key links in production chains that are critically important 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 had an enhanced effect.
State investments in infrastructure projects also played a role. For example, we are talking about the development of the Northern Sea Route for year-round navigation, and the construction of new railway lines.
The development of pipeline transport had an effect, creating prerequisites for the development of energy-deficient areas. State contracts for the restoration of liberated territories had a stimulating effect on the construction industry.
Finally, payments to ITS participants not only increased demand from their families, but also caused a chain reaction of wage growth in many sectors of the labor market. Thus, there is a significant increase in salaries of drivers of transport and road construction equipment.
At the same time, the increase in government spending did not provoke an acceleration of inflation. The observed price increase in most cases is caused by the weakening of the ruble (for imported goods). Moreover, an increase in the level of monetization of the economy creates further conditions for its organic growth. And recent forecasts of the prospects of the Russian economy sound very different today: the Ministry of Economic Development believes that in 2024-2025 GDP growth will be 2.3%, and in 2026 – 2.2%.
Dmitry Skvortsov
