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Thursday, September 28, 2023

The Future of the Russian Economy and What to Expect from this Growing Market

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According to most forecasts, Russia’s economy was predicted to go lower by 5%. Although recent data shows a shrinkage of 2.5%. Following the data from reports, this article will give a glimpse of the future of the Russian economy and what to expect from this growing market. Most major institutions expected the Russian economy to contract. However, In the meantime, the Russian central bank and the IMF have predicted that there will be a possible growth of the Russian economy in the year 2023. 

The Russian economy’s macro indicators for the year 2022 surpassed the most optimistic expectations. The Russian economy in the year 2022 is nothing short of an anomaly. Currently, there is a little variance in the economic circle. This variance is based on why the economy of the country was able to circumvent a greater shock in 2022. 

The Economic Anomaly in 2022 explained

The Russian economy was able to avoid a deeper shock despite the happenings and predictions. Both importers and exporters redirected trade flows through the countries that did not join the sanction regime. Countries including China, India and Turkey. Then the high prices for Russian energy guaranteed a huge trade in excess and high revenues from budgets. 

An economic crisis is usually a lineup of events that have consequences on the whole economy. To further state, anti-crisis policies are also a chain of actions and their consequences on the entire economy. Why did the Russian economy turn out different from the forecasts and predictions by major economic bodies? The understanding of these causes will help to give a clearer view as to what could happen in the future.


Factors that led to the Anomaly

It is not enough to just state the absence of collapse when it comes to explaining why the predictions and forecasts were wrong. In order to fully understand why all the forecasts that predicted a crash were wrong, we need to look into a chain of factors that helped the Russian economy avoid this. This way, we can also have a glimpse into the future of the Russian economy.  

Breaking the crisis

There is a difference between the official assessment of the performance of the Russian economy in 2022 and that of the group of economists in Russia. When 2021 came to a close, Russia’s annual growth rate grew past 5 percent. This was resulting from post-Covid recovery and high prices of oil. 

All of these results are important for calculating the real misplay of the economy. Also understand that the economy had reached a point of an expected continuous growth at the time 2022 started. These were the reasons why investments were made when 2021 ended and the purchase of stocks by different businesses. The question now is, why the sanction shock did not result in a big crisis for the economy

The collapse of importation, capital outflow and growing isolation from Western economy are all negative shocks caused by the sanction. However, the shocks were counterbalanced by a steep growth in export revenues and a large current account surplus supported by further growth in energy prices and the resulting contraction of imports. 

Real redistribution 

A huge surplus made the ruble strong in the year 2022. In rubles, prices were lower than in 2021 despite the growth when measured in dollars. The people who got support from the government and contracts sponsored by the state did not only enjoy these but also benefited from the numerous financing. Businesses could now have access to imports as a result of this while the appreciation of rubles did not result in higher prices. 

However, the importation structure was changing. The ratio of importation of final products went high again as a result of so many assembly manufacturers folding up. Imported goods then became more costly with reduced quality. In economic statistics, import substitution appears to be an increase in output in relevant industries. However, it is a loss for the people’s welfare. People have no choice but to replace the absent imported goods. A sharp decrease in the production of household items, medicines, cars or other appliances people use was neutralized by an increase in the production of items that have nothing to do with consumption. 

Russian currency.

Effect of Abundance

Russia made a lot of money as a result of the fact that it is a semi isolated part from the outside world. Commodities export revenues reach a record of $580 billion at the end of the year. Hence the government felt no urge to impose severe measures, instead it granted a wide range of concessions to businesses and ramped up spendings. Other economic agents who felt little pressure continued to carry out their contract obligations and even paid salaries in a situation of a sharp drop in production. 

The most powerful shock on the Russian economy was capital outflow, which amounted to nothing less than $250 billion, which is 14% or GDP. However, a massive inflow of export revenue helped to mitigate the shock effects on the economy. This will clearly reflect in the future of the Russian economy.

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