How can we explain the astonishing resilience of the Russian economy?

2024-03-14 08:27:20

Russians are called to the polls starting tomorrow to give Vladimir Putin a fifth term. Despite the war and Western sanctions, the head of the Kremlin boasts a flattering economic record. How to explain the resilience of the Russian economy?

This question haunts Western experts. Following the implementation of sanctions, the harshest ever inflicted on such a large country, the majority of decision-makers and economists predict the rapid financial collapse of Russia, then the chaos of its industry and finally the slow suffocation and inevitable impact of the energy sector, the major provider of export revenues and tax revenues Russia by Vladimir Putin. But none of that happened. Growth was 3.6% in 2023. This year, it should remain at 2.6% according to IMF forecasts. Most of the other indicators are looking good: the public deficit is contained, unemployment is at its lowest, wages are rising sharply. Even inflation is about to be brought under control.

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The determining role of the central bank

Thanks to the muscular action of the central bank led with an iron fist by Elvira Nabioullina who nevertheless wanted to resign after the invasion of Ukraine. At the request of Vladimir Putin, this respected governor remains in post to transform herself into a vigilant guardian of the ruble and financial balances. It managed to halt the fall of the ruble and succeeded in curbing the surge in prices by raising interest rates to a record level, 16%, without pity for borrowers. Inflation is now contained around 7%. Elvira Nabioullina’s firm policy was undoubtedly the first defense against the financial collapse of her country.

The Chinese godfather

Very quickly a new protective sponsor came into play: China which, like India, buys Russian oil abundantly. China which ships cars and phones to replace Western brands. China which also provides spare parts and assistance to repair blast furnaces or dilapidated factories in Russia. China through which Western products that Russia cannot do without are discreetly transported. Beijing has never denied friendship without limits » with Russia proclaimed in 2022, during Vladimir Putin’s visit to China, a few weeks before the invasion of Ukraine. Maintaining this link is vital for the Russia of Vladimir Putin, who has become Xi Jinping’s servant.

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War, third factor of this unexpected resilience

It is in fact mainly military spending that fuels the prodigious growth of the Russian economy. And it’s the rise in oil prices caused in 2022 by the conflict which fills the state coffers. To hold on, Russia actually needs war, explains academic Renaud Foucart. But it is also because of the war that it neglects the development of sectors of the future capable of transforming its cash economy into a diversified economy. These are the limits of this resilience of the Russian economy, as prodigious as it is.