A sad joke is circulating in Russia these days: “Daddy, are you drinking less?” “No, son, you will eat less.” If there is any truth in this, the Russian people will have to tighten their belts since the invasion of Ukraine. But the Russian government supports a different narrative with its official economic data.
Kremlin boss Vladimir Putin (70) leaves no doubt that Western economic sanctions have failed. Economic output fell just 2.1 percent in 2022. Western economists had expected a drop of up to 10 percent. Unemployment fell to 3.7 percent in December. During the war, Russia also reduced hyperinflation from 17 percent to less than 12 percent. The Russian economy is much more resilient than many experts expected.
“People suffer a lot from prices”
Russia has managed to strengthen its trade with countries like China and India and is building new roads and pipelines to the east. The real estate sector in the country is growing so fast that the risk of bubbles is increasing. The pharmaceutical industry, which was weak before the war, increased its production by 25 percent. Domestic companies took over shops and factories from foreign companies.
And some Western goods, such as the iPhone, which are no longer sold in official stores, enter the country through transit routes, for example, through Turkey.
But a closer look reveals a bleaker picture. “People are suffering greatly from rising prices,” says Ekaterina K. (31) on behalf of other residents at Blick. She works as a digital designer in Moscow and doesn’t want to use her real name because she is afraid of possible backlash.
Some oligarchs do big things
Month-to-month, private households spend less on groceries—down 3.5 percent last September alone and 4.3 percent in October. Despite falling demand, food prices continue to rise. Many Russians also have to save money on other products and services. When measured by consumption, one in five people now live in poverty. Rising trend. The sanctions primarily affect the population.
Among the rich oligarchs there are losers and profiteers. The EU was able to freeze assets, such as the bank accounts of some of the 1,386 people on the sanctions list, and confiscate superyachts. The oligarchs who criticize the government are abroad. Others in Russia make big bucks by taking over foreign companies for free.
Real unemployment is much higher
Even the low level of unemployment is not enough to take a closer look: On the one hand, hundreds of thousands of Russians, most of them well-qualified, fled abroad after the outbreak of war. It is said that 1.5 million more people will be active in the army by March. This distorts the numbers, as do highly flexible employment contracts. When factories stop, people continue to work, but often only low paid or not paid at all. If you add this hidden unemployment, 10 to 13 percent of Russians are currently unemployed.
Economic performance is also not free from distortions: High spending on the military prevented a sharper collapse. Also, before the invasion of the neighboring country, the government still expected an economic growth of 2.5 percent for 2022. This means that 6 percent of economic output will be lost as a result of the war. The OECD, the Organization for Economic Co-operation and Development, assumes that the Russian economy will shrink by another 5.6 percent in 2023. Russia itself predicts a change from minus 1 to plus 1 percent.
But Putin needs to tighten the screw: export earnings in the energy sector are falling. The gap in the treasury is growing. In January alone, debt measured in relation to economic output is said to have increased by more than 1 percent to over 20 percent. In an international comparison, this is still a low figure. But Vladimir Putin is preparing for a protracted war, cutting spending and raising taxes in certain sectors. This means that the reserves should be enough for another three years of the war.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
