{"id":66971,"date":"2024-06-06T10:42:05","date_gmt":"2024-06-06T10:42:05","guid":{"rendered":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/06\/06\/steve-rosenberg-russias-economy-is-growing-but-can-it-last\/"},"modified":"2024-06-06T10:42:06","modified_gmt":"2024-06-06T10:42:06","slug":"steve-rosenberg-russias-economy-is-growing-but-can-it-last","status":"publish","type":"post","link":"https:\/\/news.talkwithrattan.com\/index.php\/2024\/06\/06\/steve-rosenberg-russias-economy-is-growing-but-can-it-last\/","title":{"rendered":"Steve Rosenberg: Russia’s economy is growing, but can it last?"},"content":{"rendered":"
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Steve Rosenberg,<\/span>Russia editor, <\/span>@BBCSteveR<\/span><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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Russia\u2019s full-scale invasion of Ukraine in February 2022 not only sparked international outrage. It also triggered a wave of sanctions designed to weaken the Kremlin\u2019s ability to wage war against its neighbour.<\/b><\/p>\n

Russia\u2019s assets abroad were frozen, its economy cut off from the global financial system, its energy exports targeted.<\/p>\n

I can remember Western officials and commentators describing the sanctions as \u201ccrippling\u201d, \u201cdebilitating\u201d and \u201cunprecedented\u201d. With adjectives like these filling the airwaves, the situation seemed clear. There was surely no way that Russia\u2019s economy would withstand the pressures.<\/p>\n

Faced with the prospect of economic collapse, the Kremlin would be forced to back down and withdraw its troops. Wouldn\u2019t it?<\/p>\n

Twenty-seven months on, the war rages on. Far from being crippled, Russia\u2019s economy is growing. The International Monetary Fund predicts that Russia will record economic growth of 3.2% this year. Caveats aside, that\u2019s still more than in any of the world\u2019s advanced economies.<\/p>\n

\u201cDebilitating\u201d sanctions have not produced shortages in the shops. Russian supermarket shelves are full. True, rising prices are a problem. And not everything that used to be on sale still is – a string of Western companies exited the Russian market in protest at the invasion of Ukraine.<\/p>\n

But many of their products still find their way into Russia through a variety of routes. If you look hard enough, you can still find American cola in Russian stores.<\/p>\n

CEOs from Europe and America may no longer be flocking to Russia\u2019s annual showcase economic event – but the organisers of this year\u2019s St Petersburg International Economic Forum (once referred to as Russia\u2019s Davos) claim that delegates from more than 130 countries and territories are taking part. <\/p>\n

Instead of folding under the weight of Western sanctions, the Russian economy has been developing new markets in the East and the Global South.<\/p>\n

All of which allows Russian officials to boast that attempts to isolate Russia, politically and economically, have not succeeded.<\/p>\n

\u201cIt looks like the Russian economy managed to adjust to very unfavourable external conditions,\u201d says Yevgeny Nadorshin, senior economist at PF Capital. \u201dWithout any doubt sanctions broke a lot in the mechanism of operation inside the economy. But a lot has been restored. Adaptation is happening.\u201d<\/p>\n<\/div>\n

Workaround<\/h2>\n<\/p>\n
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Does this mean that sanctions have failed?<\/p>\n

\u201cThe big issue was our understanding of what sanctions can and cannot do,\u201d says Elina Ribakova, senior fellow at the Peterson Institute for International Economics.<\/p>\n

\u201cIt\u2019s not like flipping a switch and Russia disappears. What sanctions can do is to throw a country off balance temporarily until it finds the way to work around the sanctions, until it finds alternative ways to get shipments, or sell its oil. We\u2019re exactly in that space where Russia has found a workaround.\u201d<\/p>\n

Moscow has redirected its oil exports from Europe to China and India. In December 2022, G7 and EU leaders introduced a price cap plan aimed at limiting the revenue Russia earns from its oil exports, by trying to keep it below $60 a barrel. But Western experts concede that Russia has been able to circumvent this quite easily.<\/p>\n<\/div>\n

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The story of the price cap highlights a dilemma for the US and its partners.<\/p>\n

Recognising that Russia is one of the largest players on the global energy market, they have tried to keep Russian oil flowing to avoid hiking energy prices. The result of that is that Moscow is still making money.<\/p>\n

\u201cIn a way, we refused to properly sanction Russian oil,\u201d Elina Ribakova concludes. \u201cThis price cap is an attempt to have our cake and eat it. The priorities are to allow Russian oil on to the market and to reduce Russia\u2019s revenue. And when these two priorities conflict, unfortunately the first one wins. That allows Russia to raise a lot of revenues and continue with the war.\u201d<\/p>\n

Russia has become China\u2019s biggest supplier of oil. But Beijing\u2019s importance for Moscow extends far beyond energy exports. China has become a lifeline for the Russian economy. Trade between the two countries hit a record $240bn (\u00a3188bn) last year.<\/p>\n

Walk around St Petersburg or Moscow and you don\u2019t need to be an expert in economics to understand how important China has become to a sanctions-hit Russia. Electronics shops here are full of Chinese tablets, gadgets and mobile phones. Chinese car dealers now dominate the local car market.<\/p>\n

Not that the Russian automobile industry is sitting twiddling its thumbs. At a business expo recently in Nizhny Novgorod, Russia\u2019s Prime Minister Mikhail Mishustin was shown the brand new version of a classic Russian brand, the Volga. There was just one thing – the new Volga is based on a Chinese car, the Changan.<\/p>\n

\u201cWhere was this steering wheel made? Is it Chinese?\u201d enquired the prime minister, apparently irritated by the lack of Russian components.<\/p>\n

\u201cWe want [the wheel] to be Russian,\u201d he said.<\/p>\n

Ultimately, however, it is not the automobile industry that is driving Russia\u2019s economic growth.<\/p>\n

Military spending is doing that.<\/p>\n<\/div>\n

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Vladimir Putin visits a tank factory in the Urals<\/figcaption><\/p>\n<\/figure>\n
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Since Russia launched what the Kremlin is still calling its \u201cspecial military operation\u201d in Ukraine, armaments factories have been working round the clock and more and more Russians have been employed in the defence sector.<\/p>\n

That\u2019s driven up wages in the military-industrial complex.<\/p>\n

But spend big on the military and there\u2019s less to spend on everything else.<\/p>\n

\u201cLonger term, you are destroying the economy,\u201d believes Chris Weafer, founding partner of Eurasian consultancy firm Macro-Advisory. \u201cThere is no money going into future development.\u201d<\/p>\n

He says back in 2020 there was much discussion about the National Project programme, under which $400bn was to be spent on improving Russia\u2019s infrastructure, transportation and communications. Instead, \u201calmost all that money has been side-tracked to fund the military industrial-complex and support stability in the economy\u201d.<\/p>\n<\/div>\n

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After more than two years of fighting, Russia\u2019s economy has adapted to the pressures of war and sanctions. But the US is now threatening secondary sanctions on foreign banks aiding transactions with Moscow, and that is creating a whole new set of problems for Russia.<\/p>\n

\u201cProducts have slowed down coming into Russia,\u201d says Chris Weafer. \u201cSpare parts are more difficult to access. Every day there are stories of banks in China, Turkey and the Emirates refusing to deal with Russian transactions, whether it\u2019s money from Russia to buy goods or money going back to Russia in payment for oil or other imports. Unless this is resolved, Russia will have a financial crisis by the autumn.\u201d<\/p>\n

That\u2019s why it would be wrong to conclude that Russia has beaten sanctions. Up till now it\u2019s found ways of dealing with them, getting around them, reducing the threat from them.<\/p>\n

But the pressure on the Russian economy from sanctions hasn\u2019t gone away.<\/p>\n<\/div>\n

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BBC InDepth<\/i><\/a> is the new home on the website and app for the best analysis and expertise from our top journalists. Under a distinctive new brand, we\u2019ll bring you fresh perspectives that challenge assumptions, and deep reporting on the biggest issues to help you make sense of a complex world. And we\u2019ll be showcasing thought-provoking content from across BBC Sounds and iPlayer too. We\u2019re starting small but thinking big, and we want to know what you think – you can send us your feedback by clicking on the button below.<\/i><\/p>\n<\/div>\n

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6 hours ago Steve Rosenberg,Russia editor, @BBCSteveR Getty Images Russia\u2019s full-scale invasion of Ukraine in February 2022 not only sparked international outrage. It also triggered a wave of sanctions designed to weaken the Kremlin\u2019s ability to wage war against its neighbour. Russia\u2019s assets abroad were frozen, its economy cut off from the global financial system, […]<\/p>\n","protected":false},"author":2,"featured_media":66972,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"tdm_status":"","tdm_grid_status":"","fifu_image_url":"https:\/\/www.bbc.com\/bbcx\/grey-placeholder.png","fifu_image_alt":"","footnotes":""},"categories":[604],"tags":[1933,7265,63076,211,8346],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/66971"}],"collection":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/comments?post=66971"}],"version-history":[{"count":1,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/66971\/revisions"}],"predecessor-version":[{"id":66973,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/posts\/66971\/revisions\/66973"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/media\/66972"}],"wp:attachment":[{"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/media?parent=66971"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/categories?post=66971"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/news.talkwithrattan.com\/index.php\/wp-json\/wp\/v2\/tags?post=66971"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}