Page 34 - bne monthly magazine June 2024 Russian Despair Index

34 I Cover story bne June 2024
in the first quarter of 2022 after inflation briefly hit 20% in May of that year and a jump in unemployment, taking Russia’s despair index up to briefly touch 42.5, but it soon fell back again after the Central Bank of Russia (CBR) took drastic action to stabilise the economy.
As Moscow’s military spending-fuelled boom got underway the number of Russians living below the poverty line began to fall and numbered 20.9mn people by the end of 2022, according to RosStat estimates.
Despite the reporting, poverty in Russia has always been relatively modest and on a par with the lower end of most EU countries, which had a poverty level
of 21.7% in 2020 according to Eurostat before the various crises hit the globe and increased it.
In 2023 the economy began to boom
as Putin put Russia on a war footing and all these indicators have come down dramatically. Inflation is still high, but a much more manageable 7.8% in April. Poverty has also fallen
to 9.3%, Reuters reports. And it will fall further, according to Russian President Vladimir Putin, who has tasked the new government with bringing it under 8% as part of the renewed National Projects 2.1 programme.
During Putin’s re-election campaign
he said poverty was still an acute problem that directly affects 9% of the population, and with the rate among large families above 30%, but he set a goal for those rates to fall below 7% and 12% respectively by 2030. He promised the state would spend at least RUB10 trillion ($110bn) on the social sector as part of his guns and butter long-term plans to develop Russia’s economy.
In the meantime, the economy is already growing strongly and real
wages are rising quickly thanks to the very tight labour markets, which have also driven down unemployment to a record post-Soviet low of only 2.8%. According to the latest World Bank data, the Russian economy overtook Japan to become the fourth-largest economy in the world in purchasing power parity
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(PPP) terms, behind China, the US and India, in that order.
Taken together, Russia currently has a despair index rating of 19.7, its lowest level since 1991.
Even in the pre-war boom years when inflation fell briefly to a record low of 2.7% and unemployment was 2.9%, poverty remained at a sticky circa 14%, which puts the current despair index on a par with Russia’s best ever despair index performance.
As bne IntelliNews has reported, one
of the quirks of this war has been that Russia’s poorest regions have been the biggest winners, as that is where most of the military factories are located. The war in Ukraine has acted to undo some of Russia’s legendary income inequality, if the Kremlin’s poverty figures are to be believed.
Ukrainian despair
Ukraine has been a lot less lucky. In 2020 before the war Ukraine’s despair index was 42.7. Unemployment was stuck at 13% and with the second- lowest average incomes in Europe,
the poverty level was 27%. The good news was the National Bank of Ukraine (NBU) was one of the first central banks in Europe to anticipate the spiking prices that followed the coronavirus pandemic and smothered inflation to a remarkable 2.7% before the war started.
Assessing the situation in Ukraine today is hard, as many of the economic indicators are no longer being reported other than inflation, which was 15.5% in May but has been falling steadily for months.
No official unemployment statistics have been released since the war started and presumably Ukraine is in the same position as Russia, grappling with an acute shortage of labour thanks to the war. However, an unofficial estimate
of the unemployment rate in April was 16.8%. More than a fifth of the adult population who were working before the war lost their jobs after the war started, according to the World Bank.
The labour force in Ukraine has decreased by 27% due to mobilisation, and personnel shortages are reducing productivity, which could have an impact on the country's defence capabilities. "This is a political problem that cannot be resolved with the help of allies. Labour shortages provide Russia with a strategic advantage," said Alexander Isakov, head of Russia and CIS macroeconomics at Bloomberg.
Poverty is likewise hard to measure and there have been no official data releases since Moscow’s invasion, but Ukraine was already the poorest country in Europe before the war started. In May the World Bank estimated that a third (29%, or about 9mn people) of the population is now living below the poverty line. The World Bank says 1.8mn more Ukrainians are now living in poverty since 2020, and while the situation is dire, it would be much worse if Ukraine had not received foreign aid to help pay for pensions and salaries.
Another proxy indicator of poverty – the proportion of people surveyed who have to save on food – was 17.9% in April 2024, according to the Info Sapiens research agency.
Taken together, that gives Ukraine a despair index of 61.3, a level comparable to all of the worst crises of the last two decades.
Comparing countries
None of the despair indices today are anything like those recorded in the first years after the collapse of the Soviet Union. All of the countries in our sample have emerged from that chaos and are now simply trying to build on the progress made.
For example, life for Russians at the start of the 1990s was truly horrible. The International Monetary Fund- sponsored "shock therapy" introduced in 1992 freed state controls over prices overnight and sent the prices of staples to the moon: inflation reached a peak of 2,333% in December of the same year (that's 6.4% a day, more than
what most countries endure in a year). Unemployment was relatively mild