Russia’s economy shrinks by less than expected

Russia’s economy shrank less last year than expected given the invasion of Ukraine, figures suggest.

According to the country’s statistics agency, the economy contracted 2.1%, but that was less than the previous forecast of a 12% contraction.

While questions were raised about the reliability of the data, many commentators were surprised by the resilience of Russia’s economy.

High oil prices and military spending have helped support the economy.

After the invasion, hundreds of Western companies withdrew from Russia. The initial shock forced the stock market in Russia to temporarily shut down, causing the ruble to plummet as people queued at ATMs.

The Institute for International Finance had predicted Russia’s economy would contract by 15% in 2022, and last March US President Joe Biden said it was “on track to be halved”.

However, for most of 2022, Russia was still able to export energy.

Western restrictions on energy exports were phased in over the year, and while imports into Europe fell sharply over the year, a steady stream of buyers in China, India and elsewhere stepped in to buy up the oil, which Europe did not.

Rising global prices for oil, gas, petroleum products and other Russian exports, including food and fertilizers, helped boost Russia’s export earnings.

While hundreds of Western companies pulled out of Russia, local entrepreneurs sweated it out. For example, after McDonald’s sold its restaurants there, the new owner reopened them in June under a new name “Vkusno i Tochka”, which means “Yummy and that’s it”.

Although manufacturing and retail were among the sectors that recorded declines in 2022, agriculture, construction and hospitality grew, according to Russia’s Federal Statistics Service.

Manufacture of equipment for the Russian Armed Forces has also kept the country’s factories busy and boosted the economy by making weapons instead of cars. Military security and public administration grew by 4.1% last year.

The sanctions imposed were anything but watertight. Despite attempts to isolate Russia from the Western financial system, traders have found ways to get money in and out of Russia through bartering, routing transactions through non-sanctions countries, or even using cryptocurrencies.

That’s not to say sanctions haven’t left a notable dent – and some of the effects will be long-term.

Difficulty obtaining high tech imports like microchips will hamper manufacturing.

Experts predict that without investment, know-how and equipment from the West, production from oil and gas fields will decline over time.

The Russian government forecasts that the economy will contract by 0.8%, but the International Monetary Fund expects growth of 0.3%, partly due to the strength of its exports.