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Russian GDP may reach its pre-war level in mid-2024 unless sanctions intensify

What drives the Russian GDP increase?

An old, rusted petrol pipe station which was used in the USSR.
Photo by Krišjānis Kazaks on Unsplash

The size of the Russian GDP is expected to return to pre-war levels by the middle of next year, thanks to the increase in military expenses [1].

The official numbers of expected military spending were recently raised to USD 100 billion for 2023. Social benefits also contribute to the growth of the GDP. For instance, every white Lada, a car sometimes granted to relatives of deceased Russian soldiers, adds to the overall GDP.

While the Kremlin claims that there has been an increase in wages, there are videos showing barefoot Russian soldiers complaining about unpaid salaries. However, we may assume that many are still receiving their pay. This situation is unsurprising for a nation where almost 20% of the population lives below the poverty level. Of course, many begin to spend uncontrollably, driven by huge delayed demand. This increased spending also contributes to the growth of the GDP.

Is it a game-changer? No

The USSR had one of the largest GDPs in the world, thanks in part to the defense industry. However, this did not prevent its collapse, fortunately. GDP measures volumes and fails to account for efficiency or quality. It is also important to note that the reported GDP growth was a result of intensified utilization and redistribution of domestic resources, rather than a substantial inflow of foreign investments or a surge in export revenues [2].

Furthermore, certain countries keep supporting the Russian economy, whether covertly or openly, directly or indirectly, by buying its oil and gas including through grey schemes to bypass sanctions. Consequently, we cannot anticipate an immediate economic collapse in Russia. There is the North Korea scenario, as an example. The mass emigration of those who oppose the regime or just want to escape the conscription, and racism among the considerable part of the remaining population provides the Kremlin with ample opportunities to inflict suffering on its own people for the sake of threatening other nations. Therefore, it is necessary to intensify economic pressure on Russia with sanctions. Additionally, using naval drones to chase Russian warships in the Black Sea could prove to be a highly effective strategy from an economic standpoint [3].

What about the ruble?

The country's balance of payments has already suffered from the decrease in export revenues, primarily due to the sanctions and other restrictions imposed on Russian energy products. Consequently, the ruble exchange rate has fallen. As the aggressor's economy receives less foreign currency, countering this trend becomes increasingly challenging. While the devaluation of the national currency may benefit export industries to some extent, the Russian population will be less pleased with the rise in wages when they witness an increase in the cost of imported goods and services. Moreover, the utilization of gray schemes to bypass sanctions, particularly through third countries, already adds additional transaction costs to the final price of goods. The devaluation of the ruble will further exacerbate this situation by pushing prices higher. Although the military industry may be less affected, the average citizen's wallet will once again bear the consequences of such an economic policy.

What about human resources?

A considerable number of Russians have chosen to leave their country. Although this group may not necessarily represent the bravest segment of the population, as they have opted for a safer form of protest rather than more effective means, their choice is not the most foolish either. Thus, in addition to this brain drain, the Kremlin's policies continue to deteriorate the working population by utilizing more and more Russians as cannon fodder. The recent decision to increase the conscription age for military service from 27 to 30 years will reduce the workforce further, starting from January 2024 [4].

It appears that the aggressor's economy is increasingly prioritizing the military sector.. The outputs of many other industries may be substituted by Chinese imports, while their human resources will be channeled to the army, to avoid increasing unemployment rates. Additionally, there is a possibility of supplementing the labor force with migrants, which typically leads to short-term reductions in labor costs. This may also improve the demographic situation, while many Russians will be sitting tranches far away from their homes. Looks like a plan for Kremlin.

What shall be done?

Підсумовуючи, варто підкреслити важливість посилення санкційного тиску, зокрема в частині виявлення та протидії російським схемам з обходження санкцій. Це дієвий інструмент, хоча результати не такі швидкі, як нам хотілося б. Також, морські дрони та повітряні бобри могли б стати суттєвим мультиплікатором санкційного тиску.

Головне, завжди пам’ятати, що ніщо не ослабить рф так, як сильна Україна, тому продовжуємо донатити, боремося з корупцією в усіх її проявах та віримо в Сили оборони!

На завершення хочу підкреслити, що значна частка згаданих вище економічних показників - офіційні дані кремля, а їх, як ми знаємо, хлібом не годуй - дай щось збрехати. Проте, суті викладеного це не змінює.

In summary, it is worth emphasizing the importance of increasing sanctions pressure and implementing measures to stop Russian sanctions evasion schemes. While this tool is effective, it may not yield immediate results. Hence, Ukrainian naval drones could significantly enhance its impact in the near future. It is essential to always bear in mind that a strong Ukraine is key to weakening Russia. Federation. Therefore, we must continue to donate, show zero tolerance for corruption, and have faith in the Defense Forces.

Finally, it is important to note that a significant portion of the economic indicators mentioned above are official data from the Kremlin, which may not be entirely trustworthy.


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