Founder of the Center for the Study of Postindustrial Society, a Moscow-based research center, Vladislav Inozemtsev is an economist critical of Vladimir Putin’s regime. He has been labeled a “foreign agent” by Russian justice in May 2023 and went into exile in Washington, where he participated in the creation of an opposition think tank, the Center for Analysis and Strategies in Europe, based in Cyprus.
Is the Russian economy in good health, two and a half years after the start of Western sanctions?
Yes. It is expected to grow by 3.5-4% in 2024. In fact, Russians earn more money: real wages rose by about 10% in the first half of this year. There is certainly inflation, above official targets, and this affects the purchasing power of consumers. But, in 2023 and 2024, incomes will grow at a much faster pace, so Russians realize that well-being is increasing, not decreasing.
The economy is certainly boosted by high government spending, but this does seem to generate growth. The budget receives additional revenue not only from export earnings but also from domestic economic activity. From January to August, these revenues increased by 27.3% compared to 2023. The federal budget is therefore doing well, with the deficit limited to 0.2% of gross domestic product (GDP) for the first eight months of the year. The Ministry of Finance should even be able to increase budget spending for the rest of the year.
The Russian economy, however, will slow down in the second half of the year, but will not fall into recession. In 2025, GDP growth is expected to be 2.5% or even slightly lower. However, this is not at all a problem for the country’s economic and political stability.
So Western sanctions have had no effect on the Russian economy?
Yes, they do have an effect, there is no doubt about that. These sanctions affect certain sectors: the military-industrial complex, the automobile industry, the steel industry, natural gas production, civil air transport, etc. What does not seem to be affected at all is the service sector, most banking activities, residential construction, agriculture and everything related to basic necessities and wholesale or retail trade.
So, the sanctions are not too damaging to the Russian economy at present. Moreover, they do not change the behaviour of ordinary Russians much, as their way of life, which has not been affected much, depends mainly on locally produced goods and services. As for the upper strata of the middle class, the largest consumers of Western products, they have either left the country or have become accustomed to the new realities.
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