2023-12-18 06:30:49
“We have recovered from last year’s decline and taken a real step forward. » Thursday, December 14, it was with a smile and his nose in the figures of the Russian economy that Vladimir Putin began his traditional annual press conference. After a drop in GDP of 2.1% in 2022, the president is now demanding growth of 3.5% for 2023. “a good indicator”. The message, intended for Russian listeners and the international audience, is simple: almost two years later, it is clear that Western sanctions have proven incapable of shutting down the Russian war machine.
This resilience contradicted the predictions of Western leaders, some of whom, like the Minister of the Economy Bruno Le Maire, promised a “collapse of the Russian economy”. The avoidance of a systematic crisis is due to a variety of factors, first and foremost the reaction of the Russian authorities. “The temporary closure of several capital markets followed by very strict exchange controls by the Russian central bank made it possible to stem capital flight on an unprecedented scale, which saved the ruble from a debacle certain”, explains Julien Vercueil, specialist in the Russian economy.
” In response (to sanctions)the authorities have put the Russian economy into an artificial coma”, summarizes Alexandra Prokopenko, former advisor to the Russian central bank, citing the increase to 20% of the key interest rate at the end of February 2022. In an interview with the Carnegie think tank, she believes that these are the actions “bold and timely”, associated with the increase in prices of hydrocarbons exported by Russia “from which Westerners were slow to turn away” which allowed the Russian economy to maintain itself. And given the Kremlin time to adjust its strategy and turn to new markets that do not apply sanctions, “especially China and India, but also Turkey”.
Growth “boosted” by the military-industrial complex
Maintaining budgetary revenues allowed Russia to switch to war economy mode, doubling its military spending in the first months of the invasion and making its powerful military-industrial complex go into overdrive. And the trend continues. In 2024, almost a third of the Russian state budget will be devoted to the defense sector, or 6% of Russian GDP, more than social spending: unheard of since the fall of the Soviet Union.
If the effort is massive, it does not endanger the Russian economy in the short term, according to experts. “Overall, the budget, although ambitious, is not unrealistic in its implementation,” analyzes British economist Julian Cooper in a study of the 2024 Russian state budget, published by the Stockholm International Peace Research Institute.
However, the outlook could darken in the longer term. “The war drained the most active part of Russian society, causing the exodus of several hundred thousand (of people)and first of all the most qualified in certain key sectors for the modernization of the Russian economy”, notes Julien Vercueil, who also points out “increasing state control” of the Russian economy and “a massive imbalance” between civil and military activities.
“Russian growth is currently boosted by the military-industrial complex, and we have to see to the detriment of what. We can already see that this creates imbalances in the overall structure of the Russian economy,” confides a diplomatic source, who predicts that “Things should start to get really difficult from late 2024-early 2025.” Sanctions should not stop increasing the costs of many military equipment, and therefore of the continuation of the war. With the “special military operation” remaining a top priority, the Kremlin will pay the price, but the burden on the economy will be increased. And with it, perhaps, the social acceptability of this war.
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A military budget up 70%
Signed on November 27 by Vladimir Putin, the federal budget for the next three years shows an increase of around 25% in budgetary expenditure between 2023 and 2024, to reach 36.6 trillion rubles (375 billion euros).
Main cause of this increase, military spending, up 70% to reach nearly 110 billion euros. This budget is based on a 22% increase in budget revenues, an “optimistic” outlook according to several economists, likely to increase vulnerabilities to the strengthening of sanctions on hydrocarbons.
According to Russian Finance Minister Anton Siluanov, the Russian budget deficit should not exceed 1% of Russian GDP in 2024. Certain statements by Vladimir Putin on Thursday December 14 may, however, suggest that part of the burden will now also be borne by the budgets of the Russian regions, notes economist Julien Vercuil.
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