Russian economy lagging behind its rivals

The “Russia system” appears to have circumvented Western restrictions by its invasion of Ukraine. In the long run, however, there will be problems. It will be difficult for the Russians to make up for the lack of imports. A drop in the standard of living of the population is expected. The Russian bear is also behind the emerging Asian countries.

Moscow () – Mikhail Zadornov, president of the Otkrytye commercial bank, one of the largest in Russia, commented on the economic consequences of Western sanctions in an interview with Rbk (the authoritative agency RosBisnesConsulting). He warned there that “our economy will grow much more slowly than that of our main competitors.”

At the end of 2022, the main Russian economic indicators continue to be broadly positive, and the official version repeated by President Putin himself affirms that “the sanctions have failed, our economy is sustained and will be increasingly solid.” Zadornov observes that “this situation must be addressed by distinguishing short-term prospects from medium- and long-term ones”, even if indeed the situation is much better than expected after the “February shock”, with a drop in GDP limited to 3%.

Income from the export of oil, thanks to the increase in international prices, grew by 2%, which made it possible to maintain the course of the “strong ruble”, even without special interventions from the Central Bank. A stable currency has also made it possible to counteract the growth of inflation, but “the production and sale of oil and gas continues to be the crucial factor for us, and we cannot predict what it will be like next year”, after the European embargo that came into force On December 5th.

As Zadornov explains, it is not clear not only to whom the oil will be sold, but “who will transport and insure it, whether it will be possible to reorient the export, from Europe and other hostile countries to Asian markets.” For now, the forecasts are for a fall from 525 to 475 million tons, which will be felt strongly throughout the Russian economy.

There is a “long-term” factor related to the productive activity of many companies, which currently continue “by inertia, thanks to the reserves of materials and technologies.” But these will run out very soon and new supplies are not expected. This will lead to a “progressive adaptation to the new conditions, which will initially have a very important braking effect” due to the lack of critical components in many sectors. “China can give us something to replace it, but it will also need time and technology upgrades, not to mention logistical issues.”

Russia has very limited possibilities in terms of technology renewal and it is observed that “most companies put projects on hold, postponing them for one or two years, hoping that something will happen; and this occurs in almost all productive sectors”. Fundamentally because the preparation of new technological materials in turn requires the machinery to produce them, and this is also increasingly scarce. In any case, “it is unthinkable that a country whose economy does not reach 2% of world GDP, such as Russia, can guarantee all the necessary components for the productive system by itself.”

Therefore, Zadornov concludes, “the fact that there has not yet been an economic collapse should not create illusions. Even if we manage to resist, we will still be very limited with respect to the needs of international markets, and also for Russia’s internal market.” . The Russian economy could start to grow again at the end of 2023, but already in the period before the pandemic, from 2012 to 2019, economic growth was twice that of the G7 countries, 1% compared to 2 %, not to mention China, India and other rapidly developing economies, and in the next five years it will probably be five times slower than the other major world economies.

According to forecasts, the economic delay will also translate into a drop in the standard of living and social conditions of the population. As Zadornov warns, “we will not have to confront so much with Europe or the United States, or even with China, but rather with Indonesia, Vietnam and the countries of the Middle East, which are trying to adapt to the new conditions of the world economy” much faster than us.”