The Economist recently published an op-ed discussing Russia’s economic path over the past two years since the onset of the Ukraine war. Contrary to initial fears of a financial meltdown in 2022, the Russian economy has consistently outperformed gloomy predictions.
Rather than plunging into a severe downturn, the economy underwent a milder and shorter recession than expected. Although inflation has recently become a concern, even eliciting apprehension from Putin himself, the latest data indicates a possible stabilization in prices.
Overall, the data suggests a resurgence in the Russian economy. A forthcoming report, scheduled for publication on March 13th, points to a reduction in monthly inflation in February compared to the end of the previous year. Year-on-year inflation rates are expected to stabilize, with predictions hinting at a potential drop to a mere 4%.
These figures could potentially strengthen Putin’s standing as the upcoming presidential election in Russia, slated to commence on March 15th, draws near.
In the previous year, inflation in Russia spiked due to increased government expenditure across various sectors in the midst of the Ukraine war. This fiscal boost led to a surge in demand for goods and services, triggering a rise in prices.
The labor market also encountered difficulties, with shortages intensified by military drafts and emigration.
Two institutions lay claim to the credit for the economic recovery. The finance ministry champions exchange-rate controls, while the central bank underscores its policy of significantly hiking interest rates since July 2023, which has spurred saving and restrained lending.
Despite stringent measures, Russia seems to be on course for a “soft landing,” where inflation decelerates without severely affecting the economy. GDP growth remains in the positive territory, unemployment is low, and corporate distress is minimal. The Moscow Exchange anticipates a rise in initial public offerings this year, signaling investor confidence.
The economic tenacity of Russia can be partially credited to previous stimulus measures, with both corporations and households holding substantial cash reserves. The economy has been further bolstered by evasion of sanctions, as companies have adjusted their supply chains and formed new trade relationships, notably with China.
Despite this, there are ongoing concerns about inflation expectations and potential economic vulnerabilities, such as currency depreciation and volatile oil prices. Nevertheless, it appears that Russia’s economy is once again on the road to recovery.
Global Transition Away from Dollar Dominance:
The war in Ukraine, now in its second year, has not only highlighted the ineffectiveness of Western sanctions against Russia but has also had a boomerang effect on European countries heavily dependent on Russian gas.
Russia’s resistance to sanctions suggests a swift transition towards a multipolar world is underway, particularly given the recent expansion of the BRICS organization to include new members, such as the key US ally, Saudi Arabia.
As the momentum of de-dollarization increases, questions are being raised about the future of US economic dominance and its implications for global economic dynamics. Discussions about the establishment of an alternative financial market and reserve currency have been gaining traction rapidly.
In a desperate bid to contain Russia, the US recently imposed 500 sanctions targeting individuals and entities purportedly linked to Russia over the war in Ukraine. These were introduced following the death of Russian opposition politician Alexei Navalny on February 16.
Despite the absence of evidence linking Russia to Navalny’s death, the US laid the blame on Russia. On the day of his death, US officials announced they would discuss a potential response with their allies, leading many to suspect that Washington may have been involved in Navalny’s death.
This comes in the wake of the recent defeat of Ukrainian forces in the city of Avdiivka, which fell under Russian control, an event that greatly frustrated Western countries. The capture of the Ukrainian city, coupled with Russia’s economic resilience, has indeed exasperated Western leaders. More worryingly, Russia has emerged as a model for other nations on how to withstand US sanctions.
The West is currently contemplating the release of frozen Russian assets to finance the war in Ukraine. The IMF has warned that such a move could significantly disrupt the global monetary system and carry unforeseen risks
