What Russia's 3.6% GDP growth says about its economy but hides about Russians

The country’s economy recovered quickly from a downturn in 2022, according to yearly figures that will be released on Wednesday. However, the increase is largely dependent on state-funded ammunition and weapon manufacture, which hides issues that are impeding the improvement of Russians’ standard of living.

Estimates of 3.5% GDP growth for 2023, according to President Vladimir Putin, who is running for reelection in March, indicate that the economy is expanding and has enough safety margin to enable Russia to successfully move away from the West despite sanctions related to the conflict in Ukraine.

But despite all of the current optimism, analysts working in Russia claim that the economy is already seriously overheating as Moscow continues what it refers to as a “special military operation” in Ukraine.

The GDP growth estimate from statistics agency Rosstat, which is scheduled for Wednesday at 1600 GMT, is anticipated to show an improvement from a revised 1.2% decline in 2022. However, experts contacted by Reuters contend that the headline number provides little information about the living conditions of the majority of Russians.

“If a defence company builds a missile or a shell, they explode somewhere and GDP grows. But the civilian economy receives very little benefit from this process. The Soviet Union produced many tanks and missiles, but the people did not feel this,” economist Sergei Khestanov told the media.

Quick Reads

View All

'Indian food, our pride': $200k settlement in Palak Paneer case a moral victory against racism in the west

Mark Tully, BBC’s longtime India voice and chronicler of the country, dies at 90

Approximately 60–65% of the growth in industrial output over the past two years, according to Russia’s Centre for Macroeconomic Analysis and Short-Term Forecasting (CAMAC), has been attributed to the crisis in Ukraine.

According to other experts, Russia is flooding the market with one-time, ineffective investments that will only partially boost GDP in the future.

The Russian economy is predicted by the International Monetary Fund to grow this year at a rate higher than that of all G7 nations, but lower than that of developing European nations. Historically, nations at war have benefited economically from military spending.

The problem is worse with real disposable incomes, they claimed, with benefits and pensions not quite adjusted for inflation, with a 2023 reading of 7.4% compared to 2022’s 11.9%.

With hundreds of thousands of individuals having left Russia or enlisted in the military in the last two years, unemployment is at a record-low 2.9%.

One of Putin’s main objectives for national development, Russia’s labor productivity index, dropped 3.6% year over year in 2022, the biggest yearly decline since the fallout from the global financial crisis in 2009, according to Rosstat.

According to Labor Minister Anton Kotyakov, Russia must raise labor productivity to become more technologically independent.

Although the labor productivity figures for 2023 won’t be released until late 2024, the government’s warnings about a scarcity of workers indicate that the figure did not increase last year.

The areas and industries that profit from this year’s dramatic rise in defense and security expenditures, which accounts for about 40% of Russia’s total budget expenditure, are also where wage growth is concentrated.

Record high capacity utilisation, which reached 81% in the last quarter of 2023, up from 80.7% the previous quarter, provides another proof of Russia’s overworked labour market.

In the meantime, persistently high inflation indicates that the economy is expanding more quickly than it should be, which compels the central bank to keep interest rates high.

The IMF projects that Russia’s GDP would increase by 1.1% in 2019, a far cry from the rich and industrialized countries of the globe.

(With agency inputs)