Last year, the Russian economy shrank less than was predicted at the beginning of the war. However, the change in GDP does not tell the whole picture of the state of the Russian economy, writes ‘s financial reporter Elli-Alina Hiilamo.
Economic forecasts drafting is not easy. Especially when the world is recovering from the pandemic and there is a war in Europe.
Back in the spring, it was predicted that as a result of the war and sanctions, the Russian economy would collapse properly. It was predicted that the country’s gross domestic product would shrink by up to 15 percent in 2022.
That didn’t happen. According to the most recent estimates, the Russian economy shrank by only a few percent last year. For example, the Bank of Finland predicts that the gross domestic product will shrink by around four percent, while in the spring it expected a ten percent drop.
Predictions went wrong. Russia did not experience a quick and deep collapse, but rather a long-lasting reverse gear.
Read more: The sanctions were supposed to bring the Russian economy to its knees, but this did not happen – according to the professor, the sanctions have been misunderstood
When talking the collapse of the economy or its growth, we usually talk about the gross domestic product (GDP). The value of all services and goods produced in, for example, Russia is added to it, and this value is compared to the corresponding value of the previous period.
GDP has been closely watched, and there is a reason for that. When it is well over, the economy is doing well: people have enough work, companies have money and services are buzzing. On the other hand, when the GDP is in the negative, we are living in more difficult times: jobs are disappearing, money is scarce and, for example, you don’t go to barbershops at the same pace as before.
Gross domestic product is still only one measure and you shouldn’t stare too much at just one reading – especially when there is a state of war going on.
of economic history at the University of Helsinki the professor Jari Eloranta in my opinion, there is a kind of delusion going on in Russia regarding the economy.
War can pump up the gross domestic product artificially when the war economy is started, says Eloranta.
That’s why GDP is a difficult measure for him at the moment. It does not reveal the scale of the economic crisis.
– Terrible damage is done there to one’s own finances, let alone to long-term goals, Eloranta states.
Russian economy the long-term outlook is indeed grim.
There is no growth in sight and the standard of living of Russians is falling. Russia has severed its relationship with its most important trade partner, Europe, and it is not easy to find new partners.
The losses of human capital caused by the war are also significant. According to estimates, more than 100,000 Russians have died or been injured at the front. Many educated and skilled Russians have also left the country.
A large number of Western companies have also left Russia, and the sanctions are making production difficult in several sectors. Especially technology export restrictions will weaken the productivity of the country’s industry for a long time to come.
The Russian economy did not take a large dive last year, and it is not expected to this year either. Despite this, it is not worth drawing a conclusion that the war and sanctions will not cause the Russian economy to falter.
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