Russia’s gross domestic product is growing for the first time since the first quarter of 2022. According to a primary assessment by the Russian Statistical Agency, Moscow recorded 4.9% growth in the second quarter of 2023 year on year. This does not mean that the economy is doing well. Interview with Philippe Crevel, economist and director of Cercle de l’épargne.
4 mins
RFI: How can this jump in Russian GDP be explained?
Philippe Crevel : The rather strong growth of Russian GDP during the second quarter is linked to what is called a “base effect”. We compare the 2nd quarter of 2023 to the situation in 2022, in the 2nd quarter. However, it was the beginning of the war in Ukraine, there had been a sharp decline in GDP at that time, so there is obviously an increase compared to this period which was extremely difficult in Russia. On the other hand, if we look at Russian GDP at the end of June 2023, it is below the level it had reached a year earlier.
Despite these figures for the 2nd quarter, the Russian economy is not doing well. First, there is a sharp drop in oil and gas revenues: 41% drop at the start of the year. On the other hand, inflation is on the rise again. This forced the Russian Central Bank to raise key rates to 8.5%, an extremely high level, which will not encourage economic activity in the coming months.
Several factors remain worrisome for the Russian economy. There is the weight of embargoes, the weight of sanctions. And there is a structural problem linked to the aging of the population. There are tensions on the labor market favoring inflation. On the other hand, of course, the unemployment rate is low. It is weak for two reasons. There is this aging of the population, there is also the fact that the Russian authorities called on young people, who were on the labor market and who were sent to the front.
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Shortly after the start of the war, Bruno Le Maire, the French Minister of Economy, predicted that Western sanctions would “cause the collapse of the Russian economy”. What about more than a year later?
The Russian economy, despite an unprecedented number of sanctions for fifty years, is showing a certain resilience. Proof of this, there is this rebound in the 2nd quarter of 2023. It has managed to chug along for a year, thanks to the sale of gas and oil by indirect means. China and India have partially compensated for export losses to the West, and Europe in particular.
Russia has managed to find some products in China, in Latin America, but this does not fully compensate, especially in terms of technological goods, which it could have had before. So there is a certain form of resilience. Still, the economy is struggling. It can be more and more complex to manage. Moscow drew on the reserve funds they had built up in recent years. But gradually, these funds will disappear and the public deficit, which was non-existent in Russia, now exceeds 2% of GDP. It’s true that it could make France dream, but there is a fairly rapid deterioration in public finances in Russia, due to the reduction in revenue linked to the export of raw materials.
What sector does the Russian economy rely on at the moment?
The Russian economy is heavily dependent on gas and oil exports, which are subject to sanctions, the embargo, with a ceiling on the price level, logically at 60 dollars a barrel for oil [plafond décidé par les membres du G7, NDLR]. But there are ways around, and the possibility of selling these products to certain countries.
There are also agricultural products, and Russia uses them as a diplomatic weapon. Moscow has indicated that it is ready to export its cereals to the African countries that need it, but Russia is forced to make rebates, or even to make donations, to maintain these exchanges. Traditional strengths of the Russian economy remain, but they are increasingly constrained by sanctions.
Furthermore, the manufacture of arms and ammunition has an effect on GDP. It is true that this increases the overall production of the country, with some caveats. This production can also be hampered by the lack of access to high-tech intermediate goods that Russia does not manufacture.
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