/ world today news/ Russia, after withstanding the powerful blow from the collective West, aiming to collapse the country’s economy, showed noticeable economic success at the end of 2023.
The gross domestic product turns out to be 3.5% higher than in 2022, President Vladimir Putin announced on December 25 at a meeting of the Supreme Eurasian Economic Council.
At the same time, a significant part of the income comes from industries that are not related to the traditional pillars of our economy – oil and gas. Additional revenues from the non-oil and gas sector at the end of the year amounted to more than 3 trillion rubles. This assessment was given by the head of the Ministry of Finance, Anton Siluanov, in an interview with the Russia-24 TV channel.
The export of hydrocarbons, however, still provides a third of the revenues in the budget, the finance minister also said.
The deal in the form of OPEC+ (in which our country also participates) to reduce oil production did a good service to Russia.
The consequence of this decision was an additional 30 trillion rubles, TASS quoted the words of the head of the Russian Direct Investment Fund (RDIF) Kiril Dmitriev.
Real wages (that is, wages adjusted for inflation) for 2023 have increased by an average of about 8% across the country, President Putin noted during a December 14 hotline.
Unemployment, according to the Russian leader, has generally reached its lowest level in the entire history of modern Russia (since the early 1990s) – 2.9%.
Earlier, in October, the head of state noted that Russia has completely overcome the economic recession that occurred in 2022.
In November, the president drew attention to the fact that the share of the manufacturing industry in the structure of the Russian economy has increased, and this is happening against the background of Western restrictions.
At the same time, the country is preparing to launch new major projects that will enable a more powerful breakthrough in the knowledge-intensive industry. This situation, as the president noted, is unique to Russia.
The successes of the Russian economy in the past year are obvious, according to experts. For example, the GDP mentioned by the Russian president has increased more significantly than initially expected.
Or, as the head of the Ministry of Economic Development Maxim Reshetnikov said, the local economy “turned out to be significantly stronger and more flexible than many thought.” Moreover, this result was achieved in the conditions of a large-scale structural transformation, under the pressure of Western sanctions, in the conditions of inflation and staff shortage.
„The main beneficiary is the people”
The defense order, the scale of which is determined by the special military operation conducted by the country, largely contributes to GDP growth this year, said Georgy Ostapkovich, economist, director of the Center for Market Research at the National Research University “Higher School of Economics”, to IA Regnum.
In this case, we are talking about the manufacturing industry, that is, the non-oil and gas sector. “Textiles and the food industry are developing particularly quickly,” explains the expert. “In fact, we have growth in almost all types of economic activity.”
We should not forget the effect of the low base, the economist notes: Russia’s GDP at the end of 2022 – when the most significant Western sanctions against the country were introduced – decreased by 2.1% compared to the previous year. And the current 3.5% is an increase over last year’s reduced amount. However, the result exceeded even our wildest expectations.
At the same time, IA Regnum’s interlocutor points out that GDP growth in itself is a general indicator that does not allow to measure the level of economic development of a country and the well-being of its citizens.
„The main beneficiary of economic growth is the people,” says the expert. “And for people, the main economic meaning of life is not GDP, but employment and income.”
But in this sense, Russia’s achievements in the past year are impressive, Ostapkovic admits. The wage growth is really impressive. And unemployment below 3%, according to him, can be ignored at all. However, this also has its own risks, the expert is sure.
The flip side of financial incentives
„In Russia, unemployment should be 4% or even 5% “, Ostapkovic thinks. — Economist Alban Phillips explained this already in the middle of the last century. — He drew a graph that is now known as the Phillips curve.
The graph explains that if unemployment is low, then there is no labor market to “encourage” people and there are always those who will feel indispensable, all the while asking for higher wages. And this situation, in turn, stimulates inflation, the expert points out.
The strong consumer inflation seen on store shelves is undoubtedly evil, experts say. Another question is what methods to fight with.
Thus, financial analyst Vladimir Levchenko believes that it is necessary to limit the large-scale preferential lending programs as soon as possible. “They destroy all market forms of pricing,” says the interlocutor of IA Regnum. In addition, a financial “bubble” is being inflated, which will burst in any case. Let’s remember what happens when bubbles burst: the Japanese economy never recovered from the 1990 explosion of their financial market.”
At the same time, the main mechanism for limiting consumer inflation in Russia is well known: it is an increase by the Central Bank of the main refinancing rate (ie, the rate at which the Central Bank lends to Russian banks). By the end of 2023, the regulator, in an attempt to curb inflation, increased the rate level from 5.5 to 16%.
And this means a sharp increase in the price of loans, and not only for consumer loans: it becomes more difficult for small and medium-sized businesses, which are sensitive to the availability of affordable loans.
For example, experts see this as one of the reasons for the increase in the price of chicken eggs in the country this year (which has become a common theme in recent months). Producers, according to the head of the Association of Poultry Breeders of the Krasnodar Region Oleg Vladimirov, cannot significantly reduce the price of this product at current credit rates.
Will there be a new privatization in 2024?
The success of the Russian economy in the coming year is clearly related to the preservation of the current economic strategy, built on the refusal of close cooperation with Western countries, is convinced the doctor of economic sciences, professor, leading researcher at the Institute of Economics of the Russian Academy of Sciences Oleg Sukharev. Equally important, he said, is to avoid “liberal retaliation” in the economy.
Ostapkovic from the National Research University “Higher School of Economics”, for his part, believes that, in theory, the privatization of assets available to the state could be a significant source of replenishing the country’s budget next year.
After all, according to his estimates, about 60% of the entire economy is owned by the Russian state. Reducing this indicator could ease the burden on the state budget. But it’s not that simple, the expert admits.
„It is necessary to transfer the asset to an efficient, clean owner,” said the economist. On the other hand, he admits that privatization “it is dangerous to start now – the ‘local battles’ for the good pieces will start at the regional level’.
Vasyl Koltashov, head of the Center for Political Economic Research at the Institute for a New Society, agrees: large-scale privatization, in which the state loses control over assets, is an extremely dangerous undertaking.
“During the presidency of Dmitry Medvedev, large financial capitals have already entered state assets,” the expert recalls. — Not only for shares in Sberbank, but also for the state share in Gazprom and Rosneft. The reasoning was very simple – “the state is inefficient, useless, and private owners will be great at governing” of all assets.
That’s why the call of the head of VTB Andrey Kostin, made as early as 2023, to revive the idea of a new large privatization causes skepticism in Koltashov. The sad experience of the infamous “privatization” of the 90s clearly suggests that interested investors will want to buy attractive properties at “bargain” prices. And then – withdraw the profit received from their use to foreign offshore companies.
Additional piquancy brings the uncertainty regarding the return of the funds to Russia: the previously withdrawn capitals have not yet been sorted out. Even in the current situation, when the collective West has literally announced a hunt for the assets of large Russian businessmen, the latter are in no hurry to return the money.
„As for the return of money to Russia, I have not yet heard of any crazy cash flow, ” admits the expert. — On the contrary, capital “rushes” abroad, hiding from one offshore to another, trying to escape. Naturally, their owners try to somehow protect this money. So that $3 trillion that left the Russian economy in about 25-30 years has not yet flowed into Russia.
Even Russian exporters, according to Koltashov, do not want to sell foreign exchange earnings on the domestic market. And this is what led to the sharp weakening of the ruble in the past year, the expert is convinced.
Financial analyst Levchenko also points to a strong outflow of capital in 2023 with a high risk of retention in the next 2024. “Even in the nineties it didn’t happen,” he says.
We are also seeing an acceleration of outflows. In our country, every resident of the country can absolutely legally withdraw a million dollars a month in foreign currency to their accounts, and this simply covers any trade surplus.
In such conditions, the previously announced large-scale privatization should not be carried out under any circumstances, Sukharev agrees. “I think this is generally against the state and the president personally,” he shares. “Only people who don’t understand the situation can suggest this. “
What will happen to the frozen Russian reserves?
Experts pay special attention to the obvious risk of the final withdrawal of Russian gold and currency reserves – about 280 billion dollars previously frozen in accounts in unfriendly countries.
After all, the US House Foreign Affairs Committee overwhelmingly supported a bipartisan bill to use seized Russian assets. And although the withdrawal of these funds could undermine the authority of the United States itself as a global financial center, the risks are high. In addition, the most significant share of Russian reserves is “stuck” in the European Union, not in the United States.
In this regard, an important role can be played by the forced sale of shares of two European companies from the Russian gas business, the German Wintershall and the Austrian OMV, carried out in December according to the decree of the Russian president.
This step is not only a response to the recent arbitrary seizure of Russian assets in Germany, according to Konstantin Simonov, a professor at the Financial University of the Russian government and director of the National Energy Security Fund (NFEB).
But also a clear warning to those ruling circles of the West who decide to steal Russia’s financial reserves. In fact, in the country, the so-called type “C” accounts, in turn, accumulate funds of foreign persons earning in Russia.
And although these sums cannot cover the losses of the Russian budget in the event of an “exchange of financial hostages”, the very fact of the existence of such an opportunity is an important lever, according to the head of the FNEB.
In any case, as experts note, the confrontation between Russia and the West now determines a lot not only in the military-political, but also in the economic plane.
The previous mechanisms of UN influence on armed conflicts, which were effective in the bipolar world that existed before the collapse of the world socialist camp, no longer work. Therefore, the state of the country’s economy and finances will depend on the success of Russia’s confrontation with the West, not least on the Special Military Operation fronts.
Translation: ES
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