Sergei Guneyev
- Russia is no longer scared of western sanctions, a Kremlin spokesperson said last week.
- There are signs the economy is resilient, with growth holding firm and total wealth increasing in 2022.
- But western embargoes are still affecting Russia, as exports plunge and the ruble craters.
Russia says it isn't afraid of sanctions anymore – but maybe it should be.
Kremlin spokesperson Dmitry Peskov shrugged off the West's oil and gas embargoes and financial restrictions last week, saying Russia had "adapted" and was no longer "scared" of further measures.
There are some signs he's right, as the Russian economy is holding up better than expected as the war in Ukraine drags on.
In October, the International Monetary Fund said it expects Russia's gross domestic product (GDP) to expand by 2.2% this year, up from its previous target of 1.5%.
The IMF cited the "substantial fiscal stimulus" packages as one factor that's helped prop up growth. Moscow has pledged to spend $160 billion on its military this year, and said in September that sum would increase by a quarter in 2024.
Russia has also got richer despite the war with Ukraine, according to the UBS Global Wealth Report. The country added $600 billion in total wealth in 2022, the Swiss bank found, while the number of millionaires rose 56,000 to 480,000 despite a range of sanctions targeting high-net-worth individuals.
However, those top-line figures don't mean sanctions aren't working – or that Russia's economy is in rude health.
The West has made an effort to hit Moscow's oil and gas revenues in a bid to undermine Putin's war machine – and that's reflected in Russia's current account, which measures the flow of money for trade and investments.
Russia's current-account surplus cratered almost 80% during the first nine months of 2023 from a year earlier to $41 billion. The country's revenues from energy, a key economic driver for the oil-rich nation, dropped 41% year-on-year to just $25 billion in the seven months through July.
Meanwhile, the ruble is another sign of economic weakness. It has dropped 10% against the US dollar since Vladimir Putin's invasion – and that's despite the Bank of Russia repeatedly raising interest rates in a bid to prop up the currency.
Lastly, war itself is having an impact. Russia is now facing record worker shortages because so much of its population have either been called up to fight or chosen to emigrate, according to data published in April.
So while the Kremlin might be right that Russia has reasons for economic optimism, don't believe its claim that sanctions and a brutal and expensive war are not having an impact.