The Real Impact Of Western Sanctions Upon Russia and 2023/24 Forecasts

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How Russia’s economy thwarted the West’s ‘economic warfare’ measures

Research from the School of Economic Warfare, Paris 

The subject of the extent of change bought by the West’s sanctions upon Russia remains a hotly disputed issue both in Russia and in the West. Here, we reproduce an article, translated into English, from the 65th session of the Franco-Russian seminar co-organized by the Center for the Study of Modes of Industrialization of the School of Economic Warfare (Paris) and by the Institute of Economic Forecasting of the Russian Academy of Sciences (Moscow). This was held on July 3-5, and was hosted on the premises of the Economic Warfare School in Paris. Its findings are significant for both Russian and Western economic analysts. The original French text can be found here.

How has the Russian economy withstood the sanctions imposed since the end of February 2022?

This question has stirred many minds, often providing propaganda than real facts. However, let us recall that the sanctions implemented against Russia since the start of hostilities in Ukraine have been deep and extensive. They are in addition to the sanctions put in place after the events of 2014. Forecasters, both in the West and in Russia, have often produced catastrophic predictions of what would happen to the Russian economy by the end of 2022. Nevertheless, nothing dramatic has happened. This situation then reminds us of another major failure of forecasts in 1998-1999 following the Russian financial crash.

That these recent sanctions have had an impact, was and still is recognized by the Russian authorities. But the question was, and remains, to what extent?  By the end of 2022, growth, which was 3.5% in the two months before the sanctions, had turned into a recession of -2.1%. This is significant, but it remains much less than what was initially expected, with figures originally announced of -8% to -10%. This means that the Russian economy has not collapsed, either financially or economically, while the actual impact of the sanctions raises many discussions.

The Russian economy seems to have returned to fairly robust growth at the end of the Q2 2023, while Russia’s industrial base has experienced excellent results since the end of the Q1. Production volumes and levels have returned to pre-sanction levels. Importantly, this concerns all branches and not just those with military potential. On the other hand, a microeconomic study shows that the impact of the sanctions has not yet ceased, even if it is in the process of being absorbed. Russian industry has regained its effectiveness, but not yet its efficiency. In other words, the economy, and industry, have returned to the production volumes of the beginning of 2022, but labour productivity has fallen.

A general assessment

Growth in industry and in the economy in general, which had already been significant in April, accelerated strongly in May this year. Year-on-year GDP (in the sense of material production) has increased by 8.7% and, in the general sense, by 5.4% after 3.4% last April. Russia’s retail trade turnover has increased by 9.2% while unemployment within the working population has fallen to 3.2%. Real salary incomes have increased by 10%. Industrial production increased by 7.1% (including 12.8% for Manufacturing industry and the production of raw materials increased by 1.2%, agriculture by 2.9% and construction by 13.5%).

How can we explain such results, and the resilience of the Russian economy to what is, and remains, the most restrictive framework of sanctions ever taken against a country, except in cases of war? In fact, the measures taken against Russia can be considered as measures of economic warfare. It seems that the initiators of the sanctions, the United States, and the European Union among others (notably the United Kingdom), have underestimated the resistance capacities of the Russian economy, its transformation capacities, and the capacities of reaction of the Russian government.

Chart 1

Sources: FSGS (ROSSTAT) Sotsial’no-Yekonomicheskoe Polozhenie Rossii, No. 5, 2023

These missed capacities have proven important. The Russian government has stepped in to protect its citizens and businesses to provide levels of assistance unseen over the past ten years. The Ministry of Finance lifted its restrictive policy and in particular the application of the “budgetary rule”. Companies have also reacted well. The increase in investment in 2022 (+5.4%), even as the economy contracted, is the sign of a combination between public aid, infrastructure spending and military orders from May -June 2022, and the reactions of companies.

To this must be added the profits made by exporting companies (in hydrocarbons but also by-products and chemicals). These profits were able to feed a significant direct investment, but also fed large orders to the rest of the industry. Business optimism gained momentum as early as Q3 2022 and remains high. An important fact is that, since the beginning of 2023, the profits of the non-oil and non-gas sector have increased faster than the profits of the hydrocarbon sector. The real incomes of the population suffered from the significant inflation which appeared in April-June 2022. However, the slowdown in this inflation and a strong increase in nominal wages resulted in an overall stability of real wages in 2022 and an increase in the first half of 2023. since the start of 2023, profits in the non-oil and non-gas sector have grown faster than profits in the hydrocarbon sector.

The real incomes of the population suffered from initial significant inflation, appearing in April-June 2022. However, the slowdown in this inflation and a strong increase in nominal wages has resulted in an overall stability of real wages in 2022 and an increase in the first half of 2023. Since the start of 2023, profits in the non-oil and non-gas sector have grown faster than profits in the hydrocarbon sector. The real incomes of the population suffered from the significant inflation which appeared in April-June 2022. However, the slowdown in this inflation and a strong increase in nominal wages resulted in an overall stability of real wages in 2022 and an increase in the first half of 2023.

This has resulted in an increase in employment and a historic drop in the unemployment rate, which is currently at 3.2% of the active population and which could drop below 3% by the end of the year.  Departures of Russians overseas were in fact very limited (about 500,000 people of which an estimated 75,000 would have been men suitable for military service or engaged in manufacturing production).

Industrial production therefore returned to its highest level from December 2021 to May 2023, while manufacturing production for the first 4 months of the year is up by 4.8% compared to the results for 2022. Forecasts for June 2023 indicate an increase of 7% to 8%. The impact of a strong base effect in the industry needs to be taken into account; as the data from March to May 2022 had been poor. This partly explains the results of April and May 2023. However, the data for April and May show that industrial production in volume has largely exceeded its level of 2021. Russia is experiencing economic and industrial growth.

Analysis by sectors

The momentum of consumer industries (food industry, textile industry, furniture construction), have shown remarkable resistance to sanctions, except for furniture construction following the withdrawal of Western companies, and otherwise is experiencing strong acceleration. Import substitution could explain this, and in particular, the very strong recovery of furniture construction in recent months. Overall, we can see that import substitution has developed rapidly in consumer products and that it will progress towards products with greater technological content.

Chemicals and refining, which had experienced declines of around -5% (which explains the drop in pollution observed by satellites in the second half of 2022, appear to have emerged from the slump since last March. The rate of profit in these branches was particularly high in 2022. This suggests that the financial means to provide capital investments continue to exist in these branches. Furthermore, while fertilizer production was limited for part of the year due to export restrictions (particularly in EU countries), the increase in the production of gunpowder and explosives (linked to the production of ammunition) compensated for part of the production losses in the 2nd half of 2022. The production of medicines and materials for medical use has returned to normal levels and is benefiting from public support for import substitution.

Chart 2


Chart 3

It should be noted that the chemical industry also experienced a sharp rise in its investments before, and after the COVID-19 crisis.

Metallurgy and metal products, a sector that was relatively unaffected by the sanctions overall, now has impressive growth rates, particularly for metal products (profiles and rolled products).

Chart 4

When we examine Russian production involving complex processes (such as electronics, optics, machinery, and equipment), which should have suffered the full force of the impact of the sanctions, we not only see resistance during 2022, but acceleration in 2023. However, this sector includes many activities with military implications. It would therefore not be surprising if the latter “pulled” the overall results upwards.

Military production

It was confirmed during the Economic of War seminar in Paris that the three largest military production plants for the ground forces, being Kurganmashzavod, Omsktransmash and Uralvagonzavod had experienced significant increases of production. For Kurganmashzavod, which had 1,700 employees before the outbreak of hostilities in Ukraine, employment would rise (from 1st March 2023) to 3,900 employees (+129%). The number of hours worked also increased by at least 10%. This explains the high wage increases that can be seen in Kurgan Oblast. This factory specializes in the production of new infantry fighting vehicles and the modernization of this type of equipment. UralvagonZavod seems to have specialized entirely in the production of new tanks, while the upgrading of “old” tanks seems to have beeb entrusted to Omsktransmash (upgrading of T-64 and T-80).

For Uraltransmash and the land military equipment repair factories, the increase in employment is at least equal to +80%, while the factories have moved to a 2-shift daily regime. If we have not yet reached a “war” regime (3 x 8 / 7 x 7), production appears to have at least doubled. A sharp rise in employment, from 90% to 150%, is also reported in the “techzavods” manufacturing components for missiles, military aircraft, and helicopters.

Nevertheless, the production increases in electronics and electrical equipment over the past two months have been of such magnitude that the explanation by military orders cannot explain everything. Note also that logically, military production and orders will have increased sharply from June-July 2022. In this area, too, the role of import substitution must have been important to explain such an increase in production.

Chart 5

Finally, in transport equipment, we note the significant impact of Western sanctions on the production of automobiles (it was much less in the case of trucks). Here, it took a year for the production lines to be re-equipped within the framework of agreements made with mainly Chinese producers. The models produced have been changed or deeply modified to accept new components. The restart of this branch in April (+30%) and May 2023 (+87%) is therefore spectacular.

Chart 6

The production of trucks of various types also increased significantly at the end of the second half of 2022 due to military orders.

Overall, the reaction of the various branches of industry during the year 2022 and the beginning of the year 2023 seems to have resulted from the following factors:

  • Impact of sanctions on the supply of equipment and gradual easing of this impact due to the establishment of alternative sources for the supply of this equipment (car manufacturing, production of medicines and medical equipment, furniture manufacturing).
  • Impact of sanctions causing the closure of usual export markets and the opening of new markets, generally (but not exclusively) located in Asia (chemicals, metal products)
  • Impact of the import substitution policy and government support for this policy (food industry, electronics, electrical equipment).
  • Evolution of household demand (depressed in the 2nd and 3rd quarter of 2022, recovering in the 4th quarter of 2022 and in the 1st quarter of 2023).
  • Importance of public contracts and in particular contracts linked to military orders.
  • The impact of previous investments also played a role. Some branches show a remarkable dynamic in terms of investments.

Chart 7

Evolution of investments since 2010

Overall, investments have come 55% from Russian company funds (self-financing), 10% from the banking system, 20% from public funds (budgetary and non-budgetary) and 15% from a mix between issue of securities (2%) and loans granted by other companies in the context of relations with subcontractors.

But does this mean that Russian industry has completely overcome the shock of the sanctions? A more microeconomic analysis (a survey of several thousand companies carried out by the IPE-ASR) shows that this is not quite the case, even if, here too, the improvement in the situation shows significant growth potential.

The reaction of companies to the context of sanctions

In the first half of 2023, the recovery of the Russian economy from the post-crisis slowdown caused by large-scale external sanctions continued; production growth was observed in almost all key sectors of Russian industry. The half-yearly surveys carried out by the Institute for Economic Forecasting (IPE-ASR) in Moscow, on a basis of more than a thousand companies (excluding the energy sector) show both a process of adaptation of companies and the maintenance of certain difficulties. Company estimates point to an improvement in the situation and a gradual adjustment of the Russian economy to the sanctions. In particular, a year after the start of the new sanctions, as described below.

Table 1

Has your company been impacted by the sanctions?

Apr-May 2022 Nov-Dec 2022 Apr-May 2023
Yes: 59.20% 66.20% 60.60%
No: 22.30% 14.60% 7.90%

The share of optimistic assessments turned out to be significantly higher than in the 2022 polls. However, the share of respondents affected by the sanctions remains high at 60.6%. In other words, despite the positive developments, the impact of the sanctions on Russian businesses as a whole has remained significant, albeit highly variable.

Table 2

Have the sanctions had sales consequences on your business?

Nov-Dec 2022 Apr-May 2023
No consequences 16.20% 18.90%
Positive consequences  0.80% 3.90%
Positive and negative consequences 20.80% 24.40%

The share of respondents saying they have only suffered the negative effects of sanctions decreased from 56.9% at the end of 2022 to 46.5% in spring 2023. At the same time, the proportion of respondents who think that sanctions have not had any particular consequences for them increased slightly over the same period from 16.2% to 18.9%. The proportion of those who said the sanctions had had a positive impact also increased to 34.6%. Companies continue to point to the existence of specific problems caused by the sanctions. As in 2022, among the most pressing issues are:

  • Difficulties in sourcing raw materials and imported components (61.9% of responses),
  • Price increases (61.1%),
  • An increase in overall uncertainty in the economy (45.2%),
  • The rise in the cost of imports (44.4%).

At the same time, there is no noticeable aggravation of the problems related to sanctions. The frequency of reporting negative effects has decreased while that of “positive” effects has increased. For example, compared to the end of 2022, problems obtaining imports, reduced export opportunities and restrictions on importing technology started to be mentioned less frequently. Most likely, such a dynamic response is associated with the gradual establishment of alternative channels for cross-border supplies, as well as the strengthening of import substitution processes.

Table 3

What measures has your company taken in response to the sanctions?

Apr-May 2022 Nov-Dec 2022 Apr-May 2023
Reduced staff cost 11.50% 12.60% 11.20%
Reduced investment 36.90%  30.70%  34.80%
Limited some products 14.80% 18.10% 8.00%
Found new suppliers in Russia 69.70% 78.00% 67.20%
Found new suppliers abroad 36.10% 42.50% 34.00%
Start production new products 21.30% 27.60% 20.60%
Looked for new markets 31.10% 39.40% 41.20%
Modernized new production 14.80% 33.10% 32.80%

The predominance of so-called “active” methods of coping with sanctions over “passive” methods has become increasingly evident. In particular, during spring 2023, the share of responses regarding various types of cost reduction continued to decline. The share of responses on reducing investment costs fell from 36.9% in spring 2022 and 30.7% at the end of 2022 to 24.8% by spring 2023. Similarly, the share of responses on stopping the production of certain types of the products increased from 18.1% at the end of 2022 to 8.4% in the spring of 2023. At the same time, the frequency of reports on actions to find alternative suppliers in Russia and abroad, launch of production modernization process and search for new sales markets remained high.

The speed at which companies adapt to sanctions has depended on the support of the authorities. The view of Russian companies on what kind of support measures the authorities should implement by the end of spring 2023 has not changed much compared to the responses in 2022. These included:

  • Reduction (or slowing) of energy and transport prices (54.0% of responses),
  • Reduction of the bureaucratic burden (46.8%)
  • Reduction of the tax burden for producers (46.0%)
  • Supporting demand in the economy through public procurement (43.7% of responses),
  • Financial support for import substitution (38.9%)
  • The launch of major infrastructure projects (36.5%).

Responding to questions about the role of the state in current conditions, the majority of companies surveyed, as before, spoke out in favour of pursuing a more active state economic policy. In spring 2023, 44.4% of respondents were in favour of strengthening state intervention in the economy through indirect methods, and 11.3% were in favour of strengthening direct intervention.

At the same time, about a third of businesses favoured a reduction in the role of the state in the economy. If we analyse the dynamics of responses to the question about the desirable role of the state in the economy over the past 10 years, the share of supporters of a more active state has slowly declined, while the share of supporters of the opposite view developed.

In all likelihood, this trend indicates a gradual increase in the confidence of Russian companies in their own strength and capabilities.

What are the prospects for 2023 growth?

Multiple academic and economic discussions are taking place concerning the growth prospects of the Russian economy for 2023. Some economists anticipate a sharp slowdown in growth during the second half of 2023, a slowdown that should limit total growth to 1% or 1.5 %. It should be noted that these figures, which may appear disappointing compared to the data of recent months, remain higher than the estimates which were made at the beginning of 2023 (January-February) and which forecast a recession of -0.7% for 2023. Growth of between 1% and 1.5% would constitute an improvement compared to the forecasts formulated by the IMF (April 2023) which are +0.7% for 2023.

The arguments of the proponents of weak growth in 2023 are as follows:

  • Investments seem to have weakened markedly in the 1st quarter of 2023 and will remain weak in Q2.
  • The “new equipment” content of investments in 2022 was lower than in 2021 (35.5% compared to 39.5%).
  • The Central Bank’s fiscal policy and monetary policy could be more restrictive.
  • Exports will no longer play the role of “locomotive” of growth as in 2022.
  • The drop in the exchange rate (desired by the Central Bank in order to maximize State tax revenue) will have a negative impact on household supplies and consumption.

This calls for several remarks:

It remains true that considerable uncertainty reigns over the economic policy of government authorities. They maintained the policy of support for the economy and households during Q1 2023, and accepted a relatively large budget deficit. The possibility of a “return to budgetary orthodoxy” should not be underestimated. However, Russia will enter an electoral cycle (presidential elections of 2024). Logically, fiscal policy should remain relatively expansive and the government should maintain its “Butter and Guns” policy, which has a very clear effect on growth. Monetary policy poses another problem. Real rates, due to the sharp drop in inflation, are very high. This could be a factor to slow economic activity. However, bank credit plays a small role in investment and the proliferation of credit “subsidy” mechanisms, meaning that official rates are less important than prior to 2022.

The question of the exchange rate can be approached in various ways. It is clear that a depreciation of the rouble makes purchases of equipment and spare parts from abroad more expensive and tends to push up consumer prices, even if the share supplied by imports has fallen markedly. But this depreciation increases the volume of taxes on imports, taxes naturally collected in roubles, and allows a more expansive budgetary policy.

An analysis of the margin rate, which plays a decisive role for investments (both for financial resources and for future prospects) shows that it was particularly high in 2022 for both the exporting branches (chemicals, metallurgy, extractive industries) than for branches more focused on domestic consumption (pharmaceuticals, electrical equipment, building materials and textiles).

Chart 8

Proponents of a more optimistic position expect growth of more than 2% in 2023, with a maximum (potential growth) of 4%. The arguments supporting this thesis are:

  • Private domestic demand is expected to remain high due to the rise in real wages and the revaluation of pensions and various allowances.
  • Public demand will remain high, both because of the ongoing hostilities in Ukraine and the infrastructure programs launched by the government.
  • Companies are moving towards strong growth and their expectations are very clearly optimistic.

These arguments have some relevance. The rise in real wages should therefore continue in 2023.

Table 4

Evolution of GDP, employment, and apparent productivity year-on-year

GDP Employment Productivity
Q1 2022 103.0% 101.0% 102.0%
Q2 2022 95.5% 100.6% 95.0%
Q3 2022 96.5% 100.0% 96.4%
Q4 2022 97.3% 99.8% 97.5%
Q1 2023 98.2% 101.9% 96.4%
Q2 2023 (estimate) 103.0% 102.0% 100.9%

There has been a significant increase in employment and a significant reduction in unemployment, to the extent that this phenomenon has led to labour shortages in certain regions of Russia. The decline in apparent labour productivity observed over the last four quarters (effect of sanctions and partial mobilization) has aggravated the phenomenon.

Chart 9

In fact, one can consider that, from now on, the Russian economy corresponds more to an economy constrained by supply, than to an economy constrained by demand. If we follow this reasoning, future growth can be better understood through the rates of increase in employment and the evolution of apparent labour productivity.

Table 5

Growth Estimates based on employment and productivity assumptions

H0: Basic assumption

Employed population Increase Productivity increase (slippage) GDP increase
Job 2021 71,717
Job 2021 71.975 100.4% 97.5% 97.9%
Job 2021 73,500 102.1% 100.5% 102.6%
Job 2021 74,448 101.3% 101.0% 102.3%

H1: Rapid productivity recovery

Employed population Increase Productivity increase (slippage) GDP increase
Job 2021 71,717
Job 2021 71.975 100.4% 97.5% 97.9%
Job 2021 73,500 102.1% 101.0% 103.1%
Job 2021 74,448 101.3% 102.0% 103.3%

H2: stagnation in productivity and employment

H1: Rapid productivity recovery

Employed population Increase Productivity increase (slippage) GDP increase
Job 2021 71,717
Job 2021 71.975 100.4% 97.5% 97.9%
Job 2021 73,100 101.6% 100.0% 101.6%
Job 2021 73,800 100.5% 100.0% 100.5%

We see that the difference in estimate is +1.6%/+3.1% for 2023 and +0.5%/+3.3% for 2024. This shows to what extent the growth of Russia will be dependent both on its ability to find labour resources and on regaining the level of productivity before the implementation of the sanctions.

One of the remarks made for a proponent of a low growth rate for 2023 is that Russia will face a shortage of machinery and equipment necessary to accelerate the modernization of its economy. To which we can respond that the increase in imports, which have now returned to their level at the end of 2021/beginning of 2022, in fact contradicts this hypothesis.

Moreover, the increase in productivity does not only depend on the material structure of the equipment, but also on the rationalization of the organization of work and the flexibility of the link between companies and their subcontractors. It therefore seems reasonable to assume that productivity will gradually return to its pre-sanctions level. As for the workforce, it constitutes the most important obstacle to maintaining high growth rates in the medium term. However, the constraint imposed by Russian demography in this respect can be lifted both by “internal immigration” (accelerating the fluidity of the labour market) and by external immigration.

From this point of view, the current fall in inflation is probably not sustainable both because of a possible “wages-prices-wages” loop induced by the situation on the labour market and by the depreciation of the rate of current change. It could resume at a relatively high level (5% to 7%) in the course of 2023. From this point of view, the current fall in inflation is probably not sustainable both because of a possible “wages-prices-wages” loop induced by the situation on the labour market and by the depreciation of the rate of current change. It could resume at a relatively high level (5% to 7%) in the course of the year. From this point of view, the current fall in inflation is probably not sustainable both because of a possible “wages-prices-wages” loop induced by the situation on the labour market and by the depreciation of the rate of current change. It could resume at a relatively high level (5% to 7%) in the course of the 2nd half of 2023.

Chart 10


Chart 11



It should be noted, however, that real wages, after experiencing a sharp drop due to the peak of inflation in April-May 2022, started to rise again from October 2022, under the dual effect of the rise in nominal wages and the fall of the inflation rate.

This increase has accelerated since February 2023 and reached more than 10% in April 2023. The fall in the 2nd quarter of 2022 is therefore in the process of being compensated, and even beyond. This translates into a strong increase in retail turnover.

Chart 12


This indicator of household consumption had fallen beyond the drop in real wages due to the uncertainties resulting from the situation linked to the hostilities in Ukraine. Russian households’ propensity to save has significantly increased. The sharp increase in April and May 2023 shows that household consumption has returned to its pre-crisis level.

Growth factors remain important. The increase in income passing through the Central Bank of Russia in the 2nd quarter of 2023, and in particular in June 2023 confirm this. Economic growth should therefore be relatively high over the year, higher than the forecasts formulated by the IMF (+0.7%) and probably equal to, or at a greater rate than 1.5% in 2023. It should remain at a good level for the year 2024 if the government support policy continues.

Medium term outlook

If we now consider the medium-term potential of the Russian economy, several elements have been pointed out which deserve attention.

Firstly, with current geopolitical developments, the economic geography of Russia has changed profoundly. Economic relations (as well as political, scientific, and cultural) with the European Union are frozen. While prior to 2022, Russia appeared as a “bridge” between West and East, the western border of Russia will be, for several years, “dead” with very little traffic. Conversely, the importance of border areas facing Asia (China, Korea, Japan) will increase rapidly.

This will create long-term shifts in trade development. Cities like Vladivostok, Khabarovsk and Komsomolsk-na-Amure, will take on a new importance and will no longer be just transit points for East-West flows or even “outposts” of Russia in Asia. A public policy developing infrastructures in Eastern Siberia and the Far East will be imposed relatively quickly. This is already the case for transport infrastructure (gas pipelines, oil pipelines, and railways). But these infrastructures cannot be limited to transport. To facilitate the relocation of business close to what is destined to be Russia’s main market in the next twenty years, housing and population support infrastructures will have to be developed.

Overall, geopolitical developments will also have significant consequences on transport networks. From this point of view, the development of what the Russian authorities call the “North-South corridor”, (INSTC) in other words access from Russia to Iran and the Arabo-Persian Gulf, will become a priority. In addition to Russia’s access to a maritime outlet, it has the potential to speed up the transit of goods to countries such as India and Pakistan. However, the development of this corridor will have multiple consequences. Not only will it require the construction of important infrastructures but this corridor, which will certainly be built with an “East” branch and a “West” branch in relation to the Caspian Sea. This will involve the development of relations with countries such as Azerbaijan, Armenia, but also countries of Central Asia.

The development of this corridor will also modify the weight of certain regions in Russia itself, with new importance for cities such as Kazan, Astrakhan, Volgograd, Saratov, Samara, and Ulyanovsk.

Finally, it should be noted that this corridor will connect with the Chinese Belt & Road Initiative projects, that run from East to West towards Turkiye, and the Balkans. It will be interesting to monitor the coherence of these two projects, which meet in Iran.

These developments will also have impacts on Russia’s neighbouring countries. Armenia, which has largely benefited from the developments of the year 2022 (with the creation of more than 1,100 companies by Russian capital) and which has experienced very strong growth (+12%) could consolidate its position as a platform for Russian companies if it managed to fit in well in the “Western” branch of the North-South corridor. Relations with Iran, already important, are set to develop.

Conversely, Belarus faces a complicated situation. It loses its function as a transit platform between the countries of the European Union and Russia. But the level of development of its industries could allow it, within the framework of a more advanced integration with Russian industry, to benefit from investments within the framework of import substitution.

Finally, the geostrategic changes that have occurred since the end of February 2022 will also have consequences for the Russian financial system. If, at present, the Rouble/USD exchange rate remains the central exchange rate for the Russian economy, the rise in the volume of material and financial transactions in Chinese RMB Yuan could make the Rouble/RMB Yuan rate appear as a new pivot.

Moreover, Russia’s large budget deficit could enable it to develop its financial relations on the basis of regional circulation of the Rouble, an old project which the Russian authorities have been toying with for more than ten years, but which, with a debt/GDP ratio which would rise to values ​​of the order of 20% to 25%, could take on a new reality in the years to come.


The Russian economy has adapted remarkably well to the new situation created by the “economic warfare” measures taken by Western countries. This adaptation characterizes both the macroeconomics and the microeconomic dimension. This adaptation explains the weak recession that Russia experienced in 2022 despite doomsday forecasts. This adaptation will enable relatively strong growth in 2023 and probably in 2024.

But this adaptation is not yet complete, and it requires a major restructuring of industry and agriculture. The need for modernization remains high until apparent labour productivity recovers and exceeds its level at the end of 2021. The Russian economy will therefore remain dependent for a period of 18 months on public aid and various support. The dynamics of the private sector do not seem able to guarantee a satisfactory level of activity before 2025. The maintenance or not of the public policy of support for industry will be a determining factor of the economic dynamics of Russia for 2023 and 2024.

Original Source: Jacques Sapir, Director of Studies at EHESS and teacher at the School of Economic Warfare, Director of CEMI-EGE

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