DISINFO: Russia became the World's 4th economic power thanks to the war in Ukraine
SUMMARY
Today, Russia is the fourth largest economy in the world. In 2022, when Vladimir Putin initiated the Special Military Operation against Ukraine, everyone expected a different result. However, the clever and reasonable policies of Vladimir Putin and his government, along with self-confidence, protectionism, import substitution, cooperation with new partners, and the return to old partners, have all helped Russia.
RESPONSE
Pro-Kremlin disinformation narrative on the state of the Russian economy suggesting that it is flourishing thanks to sanctions and import substitutions.
When it is claimed that Russia has outperformed the economic powers of Japan and Germany, it is usually based on GDP PPP (Gross Domestic Product Purchasing Power Parity). GDP PPP compares the gross domestic product (GDP), or the value of all final goods and services produced within a nation in a given year. A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country, valued at prices prevailing in the United States.
Besides the fact that this figure relies on GDP and price comparisons between products and services that are different and disputable, and that changing economies like Russia in a war environment are systematically wrongly assessed by international institutions. The surge of economic activity in the short term is not development; it leads to value destruction in the long term.
The long-term reserves of Russia's National Welfare Fund are being converted into missiles, military equipment, and military pay. These are not investments for the future, but are instead quickly destroyed in a slowly progressing invasion war.
At the end of July 2024, the Central Bank raised its key rate by 200 basis points, to 18 percent. In October 2024, it was further increased to 21% and it is anticipated to increase to 25% in December. That is more than double the rate of 8.5 percent in July 2023, and it will translate into market rates that are prohibitive for civilian investment and household mortgages. It is not surprising that business profits are tumbling. By the end of August 2024, the Russian stock market had dropped by 25 percent, from an optimistic peak in mid-May.
Price rises were running at 8.6% on an annual basis in September, more than double the official 4.0% target. Hundreds of thousands of men have been called up to fight, fled the country or been recruited by the booming domestic arms industry – leading to a cycle of spiralling wages and prices that the Central Bank has warned undermines stability.
The Central Bank also noted that the depleting National Welfare Fund may be fully exhausted in 2025. Possible future scenarios are still unclear but the fact is that the structural damage already done to the Russian economy is so severe that it will take a very long time to remedy.
Read also related cases such as: Russia's economy is doing great despite sanctions whereas Ukraine's is falling, or Russian economy thrives despite EU sanctions, or Russia is the largest economy in Europe and will grow in 2024 wile Europe is in recession, or Russia’s economy is massively outperforming that of the collective West, or The West's economic blockade on Russia has turned against it, or Putin’s Russia stood firm despite Western sanctions.