The symbolism is clear. Russia’s invasion of Ukraine almost 11 months ago made President Vladimir Putin and his allies toxic to this global elite. Russia has been showered with sanctions and export controls that seek to cut them off from the global economy, using a kind of systematic might to hinder the Kremlin’s war efforts and punish Putin’s allies.
But in the real world, has it actually worked? Far away from the parties in Davos, Putin on Tuesday used new government data to paint a surprisingly rosy picture of Russia’s economy. “The actual dynamics of the economy turned out to be better than many expert forecasts,” he said, staring at the screen during a virtual meeting on the economy.
Citing data from the Ministry of Economic Development, Putin said that the gross domestic product of Russia had declined between January and November 2022 — but only by 2.1 percent. He noted that “some of our experts, not to mention foreign experts, predicted a decline of 10 percent, 15 percent and even 20 percent.”
Initial calculations suggested that Russia’s economy had shrunk by 2.5 percent over the entire 2022, the Russian president said — significantly better than the 33 percent contraction in Ukraine’s economy last year. “Our task is to support and consolidate this positive trend,” Putin added.
For many outside of Russia, these numbers are confounding. The scale of economic firepower directed at Russia since Feb. 24 has been unprecedented for a large country, with the country’s banks banned from the Belgium-based SWIFT messaging system used in international transactions and sanctions on its central bank.
But Russian data does seem to suggest that the scale of the impact was less severe than many expected. Though Putin may not be at Davos, Russia is not completely cut off from the world either. The country’s current account balance — effectively a record of its trade with the rest of the world — surged over the past year in a way that would have implied a boom year in any normal time.
Imagine if all you knew about 2022 was this chart and someone asked you to explain what caused this. You might speculate that the price of Russia’s exports had jumped a ton, but I doubt you’d think this is an economy under major sanctions. pic.twitter.com/O9cqQqrLGw
— Gerard DiPippo (@gdp1985) January 16, 2023
It’s possible that Russian data is faulty, of course. But many living in Russia or visiting have pointed out that life has continued roughly as normal, even if the departed McDonald’s has been replaced with a local burger chain (“Tasty — and that’s it”) and Western luxury goods purchases require a network of foreign buyers.
“If this is a crisis for Russia — which it is — it’s nothing like the turmoil of the early 1990s when the state, society and economy were all collapsing at the same time,” Alexander Titov, a Russian emigre and lecturer at Queen’s University Belfast, wrote for the Conversation after a recent return home.
There was disruption, Titov wrote, but it was mild even compared to what was seen early in the pandemic. “There’s no shortages, even of western goods such as whisky – the supermarket shelves are fully stocked,” he wrote.
Does this mean that sanctions haven’t worked? The short answer is no — but it’s more complicated than that.
Most importantly, remember that Western sanctions and export controls aren’t primarily designed to keep bottles of Johnnie Walker off a St. Petersburg shelf (though perhaps that might be a welcome secondary effect): They are designed to hinder Russia’s war effort in Ukraine.
As The Post’s Catherine Belton and Robyn Dixon reported late last year, scratch the surface of Russia’s economy and you’ll find that sanctions and other measures were hitting Russia where it hurt, “exacerbating equipment shortages for its army and hampering its ability to launch any new ground offensive or build new missiles, economists and Russian business executives said.”
It’s true much of the brunt of sanctions has been cushioned by Russia’s still-enormous energy exports, hence the positive accounts balance. But as Putin tried to use these exports to pressure and punish Europe, their power has been blunted. A new price cap that will soon go into effect looks set to hinder Russian exports further.
“Russia is still an energy power but its role has dramatically changed,” Vladimir Milov, former Russian deputy energy minister now living abroad, recently told the Wall Street Journal. “Russia will have a smaller market share in oil and gas, it will make less profit and it has lost some of its geopolitical leverage as well.”
That means less income for the Russian state going forward, even as its expenditure surges due to the invasion of Ukraine. Moscow posted a budget deficit of roughly $47.3 billion in 2022, according to official announcements — at roughly 2.3 percent of GDP, that’s one of the worst financial years in the country’s history.
Yes, that’s a lower deficit than the United States. But Russia doesn’t have a globally sought currency like the U.S. dollar, so it can’t just print more money without consequences. As its own sanctions on U.S. citizens have shown, Russia doesn’t have a ton of leverage in the worldwide economy — other than the diminishing power afforded by oil and gas.
In the long view, things don’t look rosy for Russia’s economy. Putin is correct that many predicted things would be far worse in 2022 — some economists told Today’s WorldView in March that they feared Russia’s economy could collapse, causing misery to ordinary civilians far outside Kremlin walls and unknown global consequences.
But Putin is wrong if he assumes a “positive trend” can easily be continued in the year ahead. The trajectory is more likely headed the other way. It’s very possible that sanctions will bite harder, revenue from oil and gas will decline further, the deficit will go deeper, and Russia’s battlefield resources will be stretched to breaking point.
How quickly that happens will depend on persistence in the West, where lax enforcement and deliberate evasion have helped Russia over the past year. That’s perhaps why Ukrainian officials and their supporters are at the World Economic Forum in Davos, where they are pushing against fatigue and apathy among allies. The Russian economy’s fate may not be decided in Putin’s embattled Moscow, nor even on the battlefield in Donbas, but over canapes and cocktails in Davos.