One month before the presidential election, the Kremlin is bragging: Russia ended 2023 with growth of 3.6%, according to the national statistics agency Rosstat. This is more than initial forecasts and a real achievement after the contraction of 1.2% in 2022. While unemployment, at less than 3%, has never been so low and external debt has decreased, passing from 46 to 32 billion dollars, the indicators therefore all seem green.
Nearly two years after the start of the Kremlin’s “special military operation” in Ukraine and Western measures against Russia, these figures confirm that, far from the collapse too quickly predicted in Brussels and Washington, the Russian economy is showing once again its resilience.
This is good news for president-candidate Vladimir Putin on the eve of the presidential election on March 17. Inflation, estimated between 7.5 and 8% (double the authorities’ objective), has certainly reduced purchasing power. But the effects of sanctions on the economic life of Russians are not massive. Consumption erodes in certain months but in an economy more than ever controlled by the State, the government intervenes to boost demand.
Example among others: public subsidies caused an increase of some 35% in mortgage loans in 2023, the main explanation for the banks’ record profits: they reached nearly 35 billion euros, or sixteen times more than the year previous year, up around 50% compared to 2021.
Industry at the service of defense
The Kremlin is particularly proud of industrial production, which increased by 3.5% last year. Sectors like the automobile industry adapted after the departure of European groups. With the help of the State, they have invested to modernize their equipment and replace Western imports. But this growth is above all inflated by the war effort.
While defense now represents 30% of federal spending and 6% of GDP, a first in the modern history of Russia, a large part of the industrial tool is put at the service of the military complex. More than half a million Russians have already joined the defense industry since 2022, according to Vladimir Putin. It’s not just about arms and ammunition. In an economy increasingly oriented towards this sector, many factories previously manufacturing civilian products have been ordered to supply the military-industrial complex.
Hydrocarbon revenues down 24%
Increased orders from the military to the broader economy more than offset the decline in the mining sector. One indicator among others, however, recalls the decline in oil and gas revenues: the tax revenues obtained by the State fell by around 24% last year, according to data from the Ministry of Finance.
This is the combined effect of falling oil prices and the reduction in gas sales to Europe, with deliveries by Gazprom having fallen by more than 55% in 2023. Western sanctions, such as the capping of Prices and the embargo on oil exports by sea, as well as the closure of the Nord Stream gas pipelines to Europe, have reduced Russia’s energy revenues.
In 2024, these effects will be less because Russia has redirected its energy exports to China and India. The government assures that Europe’s share of Russian crude exports has fallen to around 5%, compared to more than 40% before the conflict in Ukraine.