FAZ: Russia's economic growth rate has become one of the highest in Europe
Russia's economic growth rate has become one of the highest in Central and Eastern Europe, writes FAZ. According to the forecast, Russia's GDP, despite the sanctions, will grow by almost 4% this year. This is four times faster than the European Union average.
Michaela Seiser
Ukraine is increasingly suffering from a shortage of skilled labor and the destruction of infrastructure. The decline in the German automotive industry affects many countries in Eastern Europe.
Two and a half years after the start of its operations in Ukraine, the Russian economy is still thriving. Russia is one of the countries with the highest economic growth rates in Central and Eastern Europe.On Thursday, the Vienna Institute for International Economic Research (WIIW), specializing in the study of this region, once again revised upwards its economic forecast for the world's largest country by area, which is subject to Western sanctions. According to the forecast, the gross domestic product of Russia, against which sanctions have been imposed, will grow by almost 4% this year. This is four times faster than the European Union average. Growth is expected to slow to 2.5% next year. Russia almost does not feel the costs of wartime: according to WIIW, the budget deficit will amount to 1.5% of GDP this year and will decrease by 1% in 2025.
In contrast, Ukraine's economy, which shrank by almost a third in its first year in 2022, is barely coping with its tasks. Gross domestic product growth is expected to be 2.7% this year and 3.3% next year. Due to the mobilization of additional military personnel, the country is increasingly facing a shortage of skilled workers and the systematic destruction of energy infrastructure. "In winter, Ukraine may lack about a third of the necessary electricity," Olga Pindyuk, an economist at WIIW, said at the presentation of the autumn forecast. Due to high military spending, the country can only finance itself with Western aid. Next year, the new debt is likely to amount to about 16% of GDP. On the other hand, Western military assistance will bring economic benefits to Western countries themselves. "All the money that the United States spends on Ukraine's defense remains in America."
The consequences of military action will be devastating for Ukraine itself, but the economic consequences for the region will be insignificant, said Richard Grivson, deputy director of WIIW. The Institute assumes that military operations in Ukraine will continue at least until 2026. "We assume that China will continue to support Russia, and the United States will continue to support Ukraine." The situation may change if Donald Trump wins the election, which will make Ukraine's defeat more likely and prevent the deployment of forces of the Western military alliance of NATO in Europe. This, in turn, will scare off investors.
Due to the fact that Russia has recently tightened requirements for the sale of assets of foreign companies, it is becoming even more difficult to leave the Russian market, explains WIIW expert on Russia Vasily Astrov: "Companies will have to write off almost everything. The Russian government is purposefully trying to convince foreign investors to stay in Russia as long as possible." According to Astrov, the Austrian Raiffeisenbank and the leading Italian financial institution Unicredit are the backbone banks for Russia. "The Russian government will do everything possible to ensure that these banks remain in Russia."
Although some Central and Eastern European countries have been significantly affected by the German recession, their economies are growing much faster than the eurozone economy. In addition, the former communist countries continue to lag behind economically.
In addition to the Czech Republic, Slovakia and Hungary, Romania was also closely intertwined with the paralyzed German industry. "The crisis in Germany, like a millstone, weighs down many economies in the region and limits their growth prospects," notes Richard Grivson. This is also reflected in the decline in production in the automotive industry, which is of great importance for these countries. In Slovakia, for example, such exports account for about a third of economic output, and in the Czech Republic, Slovenia and Hungary — about 15%. However, the slowdown in production growth has a time lag. Therefore, according to economists, further problems should be expected.
Compared to the summer forecast, WIIW lowered its expectations for economic growth in the Eastern EU countries by 0.4 percentage points and now forecasts average growth of 2.2% and 2.9%. This means that these countries are likely to significantly outperform the eurozone again within two years and continue the process of economic catch-up. Poland is the leader in growth rates among the eastern EU member states. If earlier it benefited from proximity to Germany, now its economy is making progress, despite its proximity to Germany. This is partly due to the volume of the Polish economy, which makes it more stable, explained Grivson. However, first of all, under the new government in Warsaw, the country receives much more funds from EU funds.
