Page 11 - RusRPTSept23

2.0 Politics
2.1 Russia overtakes Germany to become fifth largest
economy in the world on PPP basis
The late US Senator John McCain once called Russia a “gas station masquerading as a country” and the fact that Russia’s nominal GDP is about the same as Italy’s has long been used to dismiss it as unimportant.
However, economists have long argued that considering only Russia’s nominal GDP of around $2 trillion is to underestimate its economic strength. Arguably, the belittling of Russia over the last decade has led Western leaders to badly miscalculate how vulnerable the Kremlin is to sanctions.
Looking at GDP in PPP (purchasing power parity) terms removes price level differences and allows a better comparison, especially of living standards, between countries.
In these terms Russia has just overtaken Germany to become the fifth wealthiest economy in the world and the largest in Europe, worth $5.3 trillion.
The PPP valuation of the economy works because the ruble equivalent of $1 can buy a lot more than $1 can buy in the US, something the Economist captured with its famous Big Mac Index: currently a Big Mac costs $5.15 in the US and the Russian equivalent (McDonalds was taken over by a Russian analogue last year and has since become the fast food market leader) cost $2.44 in July.
Sanctions on Russia were designed to impoverish Russia and make it impossible to perpetrate its war in Ukraine, but as the rest of Europe slides into recession, the Russian economy has proved to be remarkably robust after a sharp initial downturn. The IMF upgraded its economic outlook for this year again to 0.7% growth in April, while the official forecast is for something closer to 2%. Likewise, oil sanctions imposed on December 5 and February 5 were supposed to cut the Kremlin off from its main source of income, but as bne IntelliNews reported, budget revenues surged in June as oil exports completed their switch from Europe to Asia, and Russia Inc. is back in profit.
“Sanctions were supposed to crush the Russian economy. Instead, it's now bigger than Germany's (and when you cut out services, and focus only on industry and manufacturing, which is what counts in war, probably bigger than that.) The cost to Europe? Deindustrialisation, inflation," D M Collingwood, the editor of BritanniQ, said in a tweet.
However, some academics say even the PPP assessment underestimates the power of Russia’s economy. In the last decades Western economies have seen services rapidly grow in importance, but Russia’s economy remains heavily weighted towards the manufacturing and industrial end of the
RUSSIA Country Report September 2023 www.intellinews.com