- Russia’s economy has successfully adjusted to dual shock of sanctions and oil price plunge
- Oil & gas share of GDP drops below 10% but macroeconomic indicators remain strong
This post first appeared on Russia Insider
According to a Russia Insider special report on the Russian economy commissioned from the Moscow firm Awara Accounting, the Russian economy has successfully adjusted to the dual shock of Western sanctions and oil price plunge of 2014. For the three years of sanctions, Russia’s GDP lost only 2.3% in total, but strong performance in 2017 promises to reverse the losses in just one year with an expected GDP growth of 2 to 3%. Industrial production remained stable 2014 through 2016 and soared this May with 5.3% growth.
The surprising strength of the economy comes against the backdrop of another significant decrease of the share of oil & gas in the national economy. The report evidences that the share of oil & gas in the GDP dropped below 10% (2015). The same trend was backed up by data on the country’s budget revenue as energy related revenue now counted for merely 17% (2016). The report stresses that it is therefore time to lay to rest the meme of Russia’s supposed hydrocarbon dependency.
The full Awara Accounting report titled What Does Not Kill you will make you stronger – The Russian economy 2014 – 2016, the Years of Sanctions can be accessed here.
Russia’s government finances remain solid
Among other key findings, the report shows that the debt crisis predicted by Western pundits failed to materialize. The Central Bank’s reserves remained largely intact (presently at around $400 billion) and sovereign wealth funds solid. Budget deficit never went below -3.9%, while the budget has been balanced per Q1 2017 as tax collection soared. Inflation has fallen to levels of 4% while unemployment remained at the low level of 5% all through these years of sanctions.
The only clearly negative data concerns people’s income and consumption: salaries, disposable income and consumption were down at levels of 10%, as well as retail sales, which recorded a 12.9% accumulated slump for the three years.
However, the demographic indicators bucked the trend what comes to the well-being of the population. Most of the main demographic indicators now stand at all-time best values. Births and deaths have reached a near parity and the number of the Russian population at 146.8 million has reached an all-time high within present borders.
2014 – 2016, It wasn’t business as usual, it was war
The Western business media is now grudgingly admitting that the Russian economy has recovered, but they still want to denigrate the success by talking about “growth remaining anemic” or “sluggish.” They pretend to miss the point that the sanctions were designed to crush the Russian economy and plunge the country into mass unemployment and chaos readying it for regime change. According to all Western pundits, by the very least the dramatic drop in the oil price should have finished off the Russian economy.
In essence, the sanctions represented an act of war.
Considering this backdrop, the major strategic goals of Russia’s geopolitical competitors and the intended effects, this is not the time to speak about anemic nonsense. We think the occasion is rather more suitable for declaring victory. Apart for some belt-tightening on the part of the consumers nothing much was achieved, there has not been any major dent in Russia’s economic armor. Not only was nothing achieved, but rather Russia proved right Nietzsche’s maxim: That which does not kill us makes us stronger.
Yes, Russia has emerged stronger than ever after these three years of economic defense. It has now achieved the unprecedented role of a quadruple superpower: industrial superpower, agricultural superpower, military superpower and geopolitical superpower. Russia now has the world’s most self-sufficient and diversified economy capable of producing anything possibly made in the world. And Russia is now for the first time in its history food self-sufficient while simultaneously exporting more food than ever.
Russia is now the world’s most diversified economy
The report shows that far from being a “gas station masquerading as a country,” as the propaganda machine claims, Russia now runs the world’s most diversified economy. Russia is emerging as an industrial powerhouse having achieved a remarkable diversification of its economy. True, exports remain relatively undiversified, but domestic production is highly diversified and the country is virtually self-sufficient.
The widely distributed bogus claim that Russia has supposedly failed to modernize and diversify its economy has been concocted around the false claims – disproven by the report - of disproportionate share of oil & gas in GDP and tax revenue, and especially by reference to the fact that oil & gas so overwhelmingly dominate exports. But the thing is that while it is true that Russia’s exports remain relatively undiversified, one must also consider that Russia’s import volumes are the lowest in the world in terms of their share of the GDP. What this then means is that – as Russia imports so preciously little – it produces domestically most of what is consumed and invested in the country.
The report argues that it has been a failure of epic proportions from the side of the “experts” to claim that Russia’s economy is not diversified just because the exports (which is a relatively small component of the economy) were not diversified. If these experts were not so lazy-minded they would also take look at the other side of the equation, imports and domestic production.
For more details, we refer to the full study, which can be accessed here.
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