Russian Economy Remains Resilient, Despite War and Western Sanctions

JAKARTA – Russian Economy managed to outpace the United States (US) and Europe to grow 3.6% last year despite being bombarded with various strong economic sanctions and being cut off from major global markets. The growth was largely driven by increased military spending as the Kremlin continued its full-scale invasion of Ukraine launched two years ago.

Russian President Vladimir Putin emphasized that the country’s economy has successfully transitioned away from Western markets and expanded its self-sufficiency while at the same time continuing to strengthen new trade cooperation.

The Russian economy is expected to continue growing in 2024. The International Monetary Fund (IMF) increased its estimate of Russia’s economic growth by predicting that the country’s Gross Domestic Product (GDP) will increase 3.2% in 2024, up from January’s projection of 2.6%. The latest projections put Russia ahead of a number of major Western countries in terms of growth this year, including the US at 2.7%, the UK at 0.5%, France at 0.7% and Germany at 0.2%.

Starting in 2022, the US and its Western allies implemented a series of economic sanctions.
In addition to cutting Russia off from many markets in the West, these sanctions also limit the ability of Russian banks to transact business internationally and crack down on oil and gas trade, ultimately setting a price ceiling for Russian oil.

However, various sanctions did not budge, because Russia took smart steps to build new trade relations. Russia has offset much of the lost trade diverted to China. In 2023, trade turnover between the two countries will exceed USD 240 billion with China accounting for 38% of Russia’s imports and 31% of Russia’s exports.

Reaping the Benefits of Sanctions

The Russian financial system continues to adapt due to debt and equity restrictions. A dedollarization push then occurred, reducing the share of corporate foreign currency deposits from 45% in 2016 to 25% in 2022 and foreign currency loans from 35% to 15%. Among individuals, savings in foreign currency fell from 25% to under 10%.

This trend continued after the full-scale invasion and withdrawal of Russia from the SWIFT international payment system. As a result, the level of foreign currency debt does not threaten financial stability and the central bank has sufficient foreign exchange reserves to finance this debt.

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On July 1, 2023, non-financial corporate debt reached 50.6% of GDP, while individual debt reached 20.4% and government debt reached 16.1%. This level compares favorably with G20 countries, where debt levels are much higher.