After two years of massive war in Ukraine, an unstoppable Russian economy?

It’s a suspense-free election race for the Kremlin’s master. From March 15 to 17, Russia will hold the first round of presidential elections, which should confirm Vladimir Putin’s victory for a fifth term.

In recent weeks, the Russian president has once again decried the “failure” of Western sanctions that have been raining down on his country since the start of Russia’s large-scale invasion of Ukraine.

“We have growth and they have decline,” he quipped during a recent speech in Moscow, comparing Russian performance with that of Ukraine’s allies.

After a year of recession in 2022, Russia posted sustained growth in 2023, defying the forecasts of many experts. The IMF said in late January that this had reached 3%, raising its growth forecast for the Russian economy for 2024 to 2.6% from 1.5%.

In early February, the national statistics agency, Rosstat, reassessed the economy’s growth to 3.6% for the year 2023.

“It is interesting to note that Russian growth has defied the most optimistic forecasts, including those of its own institutions,” underlined Igor Delano, deputy director of the Franco-Russian Observatory.

War effort and hydrocarbon revenues

This recovery in the Russian economy comes in the context of massive increases in public investment and military spending in particular. The Russian state plans to increase the defense budget to $119 billion for the year 2024, which is almost 90% higher than in 2021.

In addition to the costs associated with arms production, the war in Ukraine boosted several industrial sectors. Along with the fortification lines built by the Russians in eastern Ukraine and south-western Russia – or the manufacturing industry, explains Julien Verqueil, a Russia expert economist and lecturer at the National Institute of Oriental Languages, the matter is for construction. Civilizations (inalco).

“Companies in the military-industrial complex have been operating at full capacity since February 2022. To facilitate recruitment, relevant workers have been exempted from mobilization. Wages have also increased, favoring household consumption, one of the driving forces of Russian growth,” he analyzed. doing.

At the same time, Russia continues to benefit from oil and gas-related rents.

“Although below their 2022 peaks, global hydrocarbon prices remained high, which allowed Russia to enjoy strong export revenues, despite sanctions,” Julian Verkuil emphasized.

The world’s third-largest oil exporter and second-largest producer of natural gas, after the United States and Saudi Arabia, still sees a 24% drop in its hydrocarbon revenues in 2023. Decreased exports to Europe due to previous Western sanctions. Russia expects to return to normal in 2024, and claims it has redirected its exports to China and India.

Are sanctions ineffective?

In late February, on the second anniversary of Russia’s full-scale invasion of Ukraine, the European Union, the United States and Canada announced a new round of sanctions against Moscow. This is the thirteenth imposed by the EU since February 2022. The publication by the IMF a few weeks ago of global growth figures revived the debate on the effectiveness of these measures.

Because if the United States grows 2.5%, the euro zone posted an average of 0.5%, weighed down by the entry into recession in 2023 of its largest economy, Germany.

“The economic situation of European countries cannot be analyzed only through the prism of relations with Russia. But it is true that the decision to cut off Russian gas hit Germany, which was heavily dependent on it, and affected the economy of the euro zone”, by Igor Delano. Analyzes.

Compared to Russian growth, these figures prove Vladimir Putin right when he says the sanctions are hurting their writers more than their country. Julien Verqueil for his part affirms that this impression is misleading.

Western sanctions targeting the Russian banking and financial system, bans on electronic components and limits on purchase prices for Russian oil and petroleum products have also “had a significant impact on the Russian economy”, it asserted.

“Like all economic sanctions in history, Western sanctions also induced adaptation behavior of the affected Russian economic institutions. But Russia was more affected by the immediate effects of the sanctions than Europe: “We can estimate that the strong growth in two years has been lost for Russia and the sanctions The effect is not over.”

Upheaval of the economic landscape

Among these effects is inflation. Its average rate rose to 7.4% in January 2024, according to Rosstat, compared with 2.8% in the euro zone. This jump in prices, particularly strong for certain consumer goods such as beef or chicken, has led to a rush on eggs in recent months, whose prices have in turn exploded, forcing the government to take action.

At the industrial level, certain sectors such as the automobile industry are still stagnant, which has been hit hard by the blocking of exports of electronic components. Others, like agriculture, face severe labor shortages. A local problem in Russia that has greatly increased since the large-scale invasion of Ukraine, with military mobilization and the exodus of several million Russians.

“Overall, the growth figures are of course satisfactory for the Russian authorities but they are very unevenly distributed” underlines Igor Delano. “Regions that are home to military-industrial complexes consider themselves highly privileged. This is the case for Moscow, Leningrad and Ukraine’s contiguous regions in the southwest, some of which are experiencing double-digit growth. “Other industrial regions remain. Behind, such as Kaluga where China’s planned takeover of automobile factories is not yet effective.”

In late February, during his annual speech to both houses of parliament, Vladimir Putin announced his vision for his country, as part of the presidential election. He announced a massive investment plan over a six-year period with a focus on infrastructure. He also set priorities for reducing imports as well as reviving the birth rate, which is at half mast. In the end, he described the country’s “true elite”, paid a living tribute to the civilians involved in the war effort and promised to give priority to soldiers in training.

“The state, in this war, is stepping into new areas of the national economy and tends to play a wider role than before” explains Julien Verqueil. For the expert, the ability of the Russian state to support this effort depends on its financial resources and especially on the evolution of oil prices, but also on the involvement of these citizens in the long term. “The economy is certainly stimulated by the war effort, but civilian production also plays a role in this dynamics. The political support of the majority of the population for the war and its leader is an important factor, including from the economic point of view.