During the year of hostilities in Ukraine and unprecedented sanctions, Russia set anti-records in terms of capital outflows, emigration and budgetary expenditures. Every citizen, in one way or another, has experienced changes in their income, savings and life prospects. About the main economic results of the year after February 24 – in the material RTVI.
The economy has entered a protracted crisis
Rosstat provisionally estimated the fall in GDP at the end of 2022 at 2.1%. This is less than during the 2020 pandemic (-3%) and than expected President , Bank of Russia (-2.5%) and the Ministry of Economic Development (-2.9%).
The decline in GDP has become less dramatic, largely due to increased government spending. The budget deficit at the end of the year amounted to 3.3 trillion rubles. There were only in the pandemic year 2020 (4.1 trillion rubles)
Russians are poorer than ten years ago. Revenues collapsed in 2014-2017 by more than 8%, then practically stagnated. At the end of 2022, real disposable income stood at 93.5% of the 2013 level.
The sanctions have not knocked out the Russian economy. But they undermine the potential for its development. The crisis will not pass quickly, economists are convinced. The Ministry of Economy expects a further contraction in GDP of 0.8% in 2023. BC admits growth at less than 1%, but does not rule out a drop of the same amount. The International Monetary Fund (IMF) expects the Russian economy to grow by a symbolic 0.3%.
Oil and gas have undergone the most dramatic changes since the collapse of the USSR
Oil and gas are the main source of income for the Russian economy and government. Russia lost its most lucrative market for oil and petroleum products after the EU refused maritime supplies of raw materials from Russia. Gas exports to the EU fell to a minimum after the sabotage of Nord Stream and the shutdown of the Yamal-Europe gas pipeline. Western giants – BP, Shell, Exxon Mobil and others refused to invest in Russia, while major developers refused to export equipment and technology.
While record commodity prices and demand from countries such as China and India supported the budget in 2022, oil and gas revenues have become more dramatic in the new year. Russia will cut its oil production by 500,000 barrels a day from March.
Oil and gas revenues fell 46% in January compared to the same month in 2022;
The main reasons are the drop in gas exports and oil prices at $49.48/bbl. Russian Urals are sold at a discount to benchmark Brent, and the discount is not reduced. Therefore, the Ministry of Finance plans to pay part of the income of oil workers to the public treasury if the price of oil starts to rise again. For this, it will be introduced new tax calculation for tankers. This will replenish the budget by 600 billion rubles.
Non-oil and gas revenues fell by 28% due to weak domestic VAT and income tax revenues.
After mega spending in December 2022, budgetary spending in January increased by 59% compared to January 2022, reaching 3,117 billion rubles. Budget deficit for January 2023 only has reached a record 1,776 billion rubles. — 14 times more than in January 2022 (125 billion rubles), i.e. 60% of the deficit forecast for the whole of 2023 (2,925 billion rubles). Ministry of Finance And CC make sure the situation with the budget is under control.
Russia left behind at least half a million citizens
In addition to monetary assets, the country loses human capital. Military operations and mobilization caused the largest wave of emigration from Russia since the collapse of the USSR. There are no official data on its extent. But the number of emigrants can be roughly estimated from the statistics of countries popular among Russians for moving.
Forbes informed around 700,000 who left just two weeks after the mobilization began, citing sources close to Kremlin estimates. The scale of emigration has been estimated at around 500,000 Washington Post and La Cloche*.
It is mainly young men who are leaving the country, people who are “richer than average and more educated”, noted demographer Alexei Raksha in an interview with RTVI. This has long-term negative consequences both for the economy and for the already alarming demographic situation in Russia. The four-year birth rate has fallen by 19%, from 1.6 million people in 2018 to 1.3 million people in 2022. Mortality in 2022, although reduced, remains higher than the period before the pandemic of COVID-19.
Emigration and mobilization are devastating the labor market. Just sending 300,000 Russians to the army means a loss of about 0.5% of employees. One out of two companies is experiencing a shortage of personnel, of which a third lack qualified specialists, show Central Bank survey. The problem is not new, but a quarter of respondents linked the shortage of staff to a reduction in the supply of labour.
One in six developers (16%) of Russian companies now work from abroad, calculated “Selection” IT research service. Head of the Ministry of Digital Development Maksut Shadayev in December said that 10% of IT professionals, or about 100,000 people, have left Russia, 80% of whom continue to work for Russian companies. Most programmers work visa-free for Russians from Georgia (13.5%), Armenia and Turkey (12% each), Kazakhstan (10%) and Serbia (7%).
Russians have set a record for withdrawing funds abroad
Russians started withdrawing money from banks immediately after the recognition in February 2022 of the People’s Republics of Donetsk and Luhansk (DNR and LNR). But the highest flow occurred during mobilization.
The amount of Russians’ funds in banks abroad has tripled – from 2.27 to 6.63 trillion rubles in 2022; The Russians took more than 40% of the currency stored there from Russian banks – savings in dollars and euros fell from 6.8 to 3.9 trillion rubles;
Deposit statistics reflects only part of the capital flight. CC appreciated its releases in 2022 to a record $217 billion since the mid-1990s and forecast another $68 billion in 2023.
One in nine foreign currency deposits (11%) are now in yuan, although Russians haven’t held any savings in that currency for another year.
Sanctions have caused fundamental changes in trade
Russia moved on to countries that refrained from sanctions. They produce around 30% of the world’s GDP.
Russia’s dependence on China has grown. Trade with China increased by 28%, reported Federal Customs Service (FTS). But this is the result of rising oil and gas prices – China is increasing the purchase of Russian raw materials, not the supply of equipment. Chinese imports to Russia grew by only 4.5%, according to the General Administration of China Customs.
Trade with the main transit hub, Turkey, soared by 84%. Russia has become the country’s leading supplier, even ahead of China. As for Turkish deliveries to Russia, a significant part of them is re-exported, informed The world.
Trade with Germany fell by 23%, German deliveries fell from 45% – to a minimum in two decades due to the suspension of imports of cars and spare parts, engineering products. Russian exports to Germany increased by 11% due to high oil and gas prices. Trade with the Netherlands remained virtually unchanged (-0.1%).
Trade with Belarus grown up 10% to $50 billion – an all-time high. And the country increase deliveries to Russia by one and a half times. The trade balance has turned positive – Belarus for the first time sold in Russia more than I bought.
What future for the Russian economy?
The promised collapse of the Russian economy has not happened. Despite criticism from political and judicial institutions, Russia’s financial and monetary policy has been strong in recent years, reserves are large and the banking system is stable. The government and companies were preparing for sanctions. In addition, many countries and counterparties continue to work with Russia, and the country manages to obtain chips and other sanctioned products with the help of proxy companies through China and Turkey.
Nevertheless, it is necessary to overpay to circumvent the sanctions, and a turn towards the East requires enormous investments. Sanctions undermine the potential for the development of entire industries and the modernization of production. The country is undergoing “regressive import substitution” – when advanced Western technologies and components are replaced by more primitive analogues.
As for the outlook for this year, 2023 could be the year of increased secondary sanctions. Russia will have to maintain high spending on the army: the state’s priority for the coming years is to pay for military operations and security forces. Inflated due to exorbitant commodity prices in 2022, the budget has started to contract and spending is still exploding. So far, the budget includes a deficit of 2% of GDP, but it is already clear that the “hole” will be bigger. The stagnation of the economy leads to increased losses, the replenishment of which requires high costs and time.
* the publication is included in the Unified Register of Foreign Agents of the Ministry of Justice of Russia
