Page 27 - bne IntelliNews monthly magazine December 2024

bne December 2024 Cover Story I 27
Russia’s economy has been battered by sanctions and high inflation, but there is no chance of a major economic crisis occurring anytime in the next three to five years, says a new authoritative report from CASE.
The authors of the report are amongst the keenest observers of Russian economics. Sergey Aleksashenko is
a renowned Russian economist who served as Deputy Finance Minister
of Russia from 1993 to 1995. Dmitry Nekrasov held various positions
in Russia’s Federal Tax Service and Presidential Administration during Dmitry Medvedev’s years in the Kremlin. And Vladislav Inozemtsev is a famous Russian economist in exile who is the founder and director of the Center for Post-Industrial Studies and former professor at the prestigious Higher School of Economics in Moscow.
Inozemtsev has been well ahead of the curve, being the first to predict how
the Russian economy is cooling as the military Keynesian effects start to wear off in August. The theme of Russia’s growing economic problems has been taken up by many of Russia’s opponents and culminated in a recent article
from opposition publication Meduza predicting that Russia faces a wave of bankruptcies in 2025 thanks to the soaring cost of borrowing.
But in his latest paper, Inozemtsev takes some of the wind out of the sails of this pessimistic outlook. The report's general conclusion is that “Russia
has been able to withstand the blow caused by the Western sanctions due to a combination of factors, including its well-developed market economy, its indispensable position as a supplier
of primary commodities to the global market, highly professional responses by its government officials, and the West’s inability to isolate Russia on the international stage.”
“An unbiased assessment of Russia’s economic capabilities presented in the report excludes almost any chances
of a serious crisis caused by internal factors in at least three-to-five-years
perspective,” the report concludes, running counter to the predictions that Russia’s economy will run into a brick wall in 2025.
Growth without development
Russia’s economy was expected to collapse after the extreme sanctions were imposed in 2022. And indeed, the first few months were a shock. But during the summer it unexpectedly boomed and in 2024 it has been the European economies that have fallen into recession as the boomerang effect of the sanctions begins to bite. The West underestimated how fast and how successfully Putin could reorient his trade to the Global South and
how deeply integrated Russia is into European economies.
Since mid-2023, the Russian economy has undergone important structural changes: military spending has increased, the geography of foreign trade has changed and the citizens’ real disposable incomes have grown as wages are driven up by a chronic labour shortage. Together, all this
increase in the volume of production of long-mastered products, an expansion of the service sector, and limited modernisation of infrastructure without significant technological progress.
Indeed, in many respects Russia’s economy has gone backwards. CBR Governor Elvira Nabiullina warned companies at the start of the war they might need to go back “two generations of technology” to keep their factories running.
And even more worrying for the global economy, sanctions have created a new class of Bandit Countries that champion massive violations of intellectual property rights, illicit foreign trades and the use of non-traditional forms of international settlements.
“The Kremlin sees opportunities for institutionalising this model and
is laying it down as the basis for its geopolitical claims, trying to establish itself as a leader of a “non-Western” community of nations.
“An unbiased assessment of Russia’s economic capabilities presented in the report excludes almost any chances of a serious crisis caused by internal factors in at least three-to-five-years perspective”
has provided the Russian economy with strength and stability and made it capable of meeting the needs of Kremlin’s military machine in the years to come while providing the necessary financial resources for funding welfare programmes on a scale preventing an increase in protest sentiments, the authors say. The flourishing oil trade means Russia has plenty of money,
but the war has killed off meaningful progress.
“The current stance can be described as a “growth without development”, being characterised by a quantitative
Getting it wrong
The authors point out that analysts keep getting Russia wrong, overestimating the power of sanctions, underestimating the quality of the country’s economic leadership and its ability to remake its markets in the face of sanctions.
In April 2022 the World Bank predicted Russia’s GDP would decline by 11.2%
by the end of the year, but the final estimate came to only minus 2.1%. In 2023, the Russian economy grew by 3.6% against the January IMF forecast of 0.3%; and in 2024 its growth could achieve 3.8-4.0%, while at the start
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