A year after the start of the conflict in Ukraine, it is clear that Western hopes to bend Moscow quickly from an economic point of view have turned out to be vain: GDP actually fell by only 2.5% and inflation stopped at 11.5%. Credit goes to the boom in oil and gas exports, which could, however, be impacted in 2023 by the collapse in prices and the fallout from Western sanctions
The beginning of the war and the first Western economic countermeasures seemed to herald the end of the Russian economy: the signs, such as the stock market closing for a month, the collapse of the ruble, the specter of GDP falling by 8% and 20% inflation they seemed unequivocal. Today the story seems to have changed: Twelve months after Moscow’s invasion of Ukraine, the crush of the Russian economy, initially seen as inevitable, today seems a little less certain, mainly thanks to the rise in gas revenues and petroleum. However, the collapse of prices in 2023 could create worrying scenarios for Moscow.
How life is in Russia
At first glance, everything seems to be going on as usual in Russia: various clubs and restaurants are busy on weekends, the skating rinks are overcrowded, the supermarkets are well stocked, stores of major foreign brands are still open in the shopping streets of the major Russian cities. Despite some difficulties, many Russians also continue to travel abroad, for work or tourism: just consider that in 2022 the Italian consulate issued about 100,000 visas. The main problem seems to be mainly inflation, which reached 11.9% in early February, and not the fall in GDP, which according to the Central Bank fell by only 2.5% in 2022 and is expected – according to the IMF – even a weak +0.3% in 2023. The Rosstat State Statistical Institute even speaks of a GDP that has shrunk by 2.1% in 2022. How is that possible? The explosion of revenues from energy exports, which according to an ISPI study will reach $330 billion in 2022, has certainly contributed to this. Import restrictions, on the one hand, have favored the growth of some local productions and, on the other hand, have been circumvented thanks to some triangular relationships with third countries, such as Turkey, the United Arab Emirates and Kazakhstan.
Relations between Russia, Ukraine and the West
Although the dialogue between the parties now seems to have deteriorated, there are still exchange relations between Russia and Ukraine, as well as with the West. According to a study by the University of St. Gallen and the IMD Institute in Lausanne, only 8.5% of European companies and those of the other G7 states have actually closed their subsidiaries in the country, while the major banks are still US companies such as Goldman Sachs and JP Morgan. Moscow continues to export certain products such as titanium to the West, which are important to the aviation industry, and also continues to pay Ukraine for the passage of gas through its territory. In addition, as a Russian deputy of the Duma noted, the shares of arms companies from Western countries that supply Kiev continue to trade on the Moscow stock exchange without any problems.
Who left and who fled
One of the few companies that actually left Russia is McDonald’s, whose arrival in Moscow in 1990 was seen as a sign of effective détente with the West, as desired by then CPSU Secretary and Soviet Union leader Mikhail Gorbachev. Today, however, the chain has changed names, since it was taken over by Russian tycoon Alexander Govor, who renamed it “Vkusno and Tochka” (Taste and point) and is now a candidate to also take over McDonald’s fast food restaurants in Kazakhstan. In addition to the companies, however, it was mainly men who fled to Russia with the partial mobilization decided by Putin, especially in the fall. Some Italians who had acquired Russian citizenship through marriage were also summoned to the recruitment offices, but none of them seem to have actually been summoned. An Italian who organizes birthday parties and other events in two clubs in Moscow explained how “for at least a month I only saw women participating. The men were all in hiding or fled.”
The problems for the future
If the men left behind in Russia fear new conscription, the authorities instead wonder how they can continue to fund the war. Gas sales to Europe have now collapsed by 80%, but the speculative price increase, which was 8-9 times what it was in February 2022, had allowed Moscow to increase revenues until a few months ago. However, now that the price of gas and oil has practically halved, the authorities know that the biggest risk is a GDP in free fall, even above 2.2%, registered in 2022. Despite the good stability of the Russian economy, in its fifth crisis in twenty-five years and relatively isolated from the more interconnected Western, it is possible that the sanctions will have a greater impact than in the past, as the Brussels site points out European politician.
Source: TG 24 Sky
I am Lawrence Sickels and I work in the news industry. For the past few years, I have been writing for The News Dept, a web-based platform dedicated to providing readers with quality journalism. My main area of focus is covering economic news and business trends across the globe. With my detailed knowledge of current affairs and market analysis, I am able to offer insightful commentary on economic issues beyond the headlines.
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