The Russian economy has shown phenomenal resilience
The economy and budget of Russia experienced a very unusual period in 2022, which will definitely remain in the history books. Despite the colossal sanctions pressure from the West, the economy of our country not only did not collapse, but even strengthened in a number of ways - and this surprised the whole world. What made this happen?
2022 brought a lot of surprises in the economy. Unprecedentedly tough sanctions were imposed against Russia. This includes the blocking of foreign exchange reserves of the Russian Central Bank, and the disconnection of many large banks from the international SWIFT settlement system. More than 1,000 foreign companies have announced their withdrawal from Russia.
"In fact, 2022 broke many of the trends that have developed over the past few decades - Russia's orientation mainly to Western export markets, capital markets and technologies. The government and the Central Bank of the Russian Federation took emergency measures to prevent the collapse of the economy. Russia began a sharp and painful turn to the East, a structural transformation" with high costs for both the Russian and European economies, and for the world economy as a whole," says Olga Belenkaya, head of the macroeconomic analysis department at FG Finam.
"The past year can be called a turning point for the Russian economy both in terms of changing partners, and in terms of changing the structure of the economy and moving to a greater degree of diversification," says Denis Perepelitsa, head of the Department of Global Financial Markets and Fintech at the Russian University of Economics. Plekhanov.
"A fundamentally new model of the Russian economy's involvement in the world economy is being formed. Changes have affected foreign economic relations, the financial sector, enterprises' access to technologies, budgets at various levels, and employment. However, it turned out that the Russian economy has a high degree of resistance to such large-scale external shocks," – notes Vladimir Klimanov, director of the Center for Regional Policy at the Institute for Applied Economic Research of the RANEPA.
Everyone was surprised at the stability of the Russian economy, from Russian experts themselves to analysts from major international banks and funds. Back in the spring, many were sure that Russia would not be able to recover so quickly from the economic shock that occurred in the winter.
"The geopolitical situation, the departure of many foreign brands from Russia and sanctions led to the collapse of the ruble in March 2022, which quite naturally led to a drop in industrial production, a drop in GDP, a sharp jump in inflation and a new round of falling real incomes of the population. That is, in the Russian economy there was a crisis,” recalls Natalya Milchakova, a leading analyst at Freedom Finance Global.
However, by the end of the year, the situation improved significantly. "The fall in GDP in 2022 is expected to be in the range of 2.5-3.5%, but this cannot be compared with the fall in GDP by almost 9% in the relatively prosperous 2009. There has never been such a deep recession as in 2009 during the crisis of 2014-2016, neither in 2020, nor now, although the crisis of 2009 was the only crisis that Russia experienced without being under Western sanctions. there was a decline," Melchakova notes.
The same can be said about inflation. The maximum level of annual consumer price inflation in Russia since the beginning of the 21st century was recorded in 2015 - this is 13%, but this maximum is not expected to be exceeded in 2022, the expert adds. If in the spring the Central Bank of the Russian Federation predicted inflation by the end of the year at the level of 18-20%, then in fact it turned out to be close to 12%. And in 2023, it is expected to go down.
Thanks to what did the Russian economy manage to survive?
Prices for gas, oil, metals, mineral fertilizers, and grain have risen sharply, and these are the main Russian export commodities. They ensured that revenues were maintained even with a physical reduction in exports, Klimanov says. The actions of the government, the Central Bank and regional authorities, which were able to promptly adopt a large-scale package of anti-crisis measures, also helped.
The stability of the Russian economy has been helped, among other things, by the growth of budget spending and preferential lending programs, the growth of investment in fixed assets and the maintenance of record low unemployment, says Belenkaya. According to her,
State support measures in aviation, construction, the automotive industry, domestic tourism, changes in trade and logistics chains, as well as the legalization of parallel imports helped mitigate the negative effect of the sanctions.
The persistence of oil exports, coupled with the collapse of imports, led to record foreign trade and current account surpluses, estimated to be around $250 billion. Together with restrictions on capital movements, this ensured a significant strengthening of the ruble. By the end of June, the dollar exchange rate against the ruble briefly dropped below even 50 rubles. The strong ruble, in turn, had a strong deflationary effect, Belenkaya points out.
“All these, at first glance, rather unexpected events in 2022, in fact, have the same explanation: in 2022, the Russian economy, firstly, is no longer as heavily dependent on hydrocarbons as it was 13 or even seven years ago; secondly, the Russian economy is no longer as dependent on imports from Western countries as it was during previous economic crises,” says Milchakova.
According to her, for almost 20 years the Russian economy has been built on a rather vulnerable economic model codenamed "oil and gas in exchange for cars and consumer goods." However, the Russian food embargo imposed in 2014 on many types of food from the “sanctioned” countries helped in many ways to get rid of excessive dependence on imports, and in 2022 to mitigate the effects of sanctions.
Another important point: in 2022, Russia stopped counting on assistance in the form of investments from the West, and on the other hand, it began to strengthen cooperation with friendly countries from the BRICS group, the EAEU and OPEC +, Milchakova notes. The active process of de-dollarization of the Russian economy, which began in 2022, will continue, and the places vacated on the Russian market will be occupied by domestic companies.
Despite the sanctions, Russia showed an increase in housing construction, road construction, as well as in agriculture. So, already in 11 months of 2022, a record number of housing was built in Russia - 93.26 million square meters of housing. Commissioning volumes exceeded last year by almost 15%, although 2021 was a record year for housing commissioning in the entire history of our country, including the Soviet period.
2022 was also the best year in Russia in terms of the pace of road construction since the times of the USSR. This year, 165 million square meters of asphalt were laid on regional and local roads (against 162 million square meters last year).
Agriculture in the outgoing year shows growth. For ten months, the output increased by 5%. The harvest of grains - and this is the main commodity for export in agriculture - has been repeatedly adjusted upwards. By the end of the year, it became clear that this was again a record harvest. The Ministry of Agriculture reported 159 million tons of grain, of which over 105 million tons is wheat. Also, the development of industry is helped by a good loading of defense industry enterprises.
"So the negative events of 2022 for Russia turned out to be just one of the many crises that needs to be experienced in order to become stronger and overcome dependence, firstly, on the import of consumer goods, and secondly, to generally resolve the issue in order not to rely too much for imports, but to produce non-food products on their own," concludes Milchakova.
“In general, the situation is stable. With an effective transformation of the Russian economy at the end of 2023, it can move to growth. However, this will happen provided that the global recession does not start, and the chances of its beginning are very high,” warns Perepelitsa, from the Russian Economic University named after . Plekhanov.