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Russia’s Economy Grows By 3.6% Due To Boost In Military Orders

The government’s Rosstat statistical office announced the figures in a statement. (representative)

Official data on Wednesday showed Russia’s economy grew 3.6% last year due to increased military spending due to the attack on Ukraine, although long-term economic challenges remain.

The government’s Rosstat statistical office announced the figures in a statement.

Gross domestic product (GDP) in 2022 fell by 1.2% due to the initial impact of Western sanctions imposed on Moscow after sending troops to Ukraine.

The 2023 results show that the economy has largely absorbed the impact of sanctions and found ways to circumvent them through changes in supply lines, trading partners, and government intervention.

Economic activity was supported by favorable energy prices, accommodative credit conditions, strong domestic demand from the defense sector, and salary increases to attract workers in sectors experiencing labor shortages.

And despite the large increase in federal spending, the public deficit remains contained at 1.9% of gross domestic product, the Treasury said.

The auto sector and banks, symbols of Russia’s openness to foreign capital and currently dominated by Chinese manufacturers, are recovering well from the withdrawal of large European companies and heavy sanctions.

Another boost for the Russian government is the ability to reduce its budgetary dependence on oil and gas revenues.

The sector accounted for about half of federal revenue in 2022, but that share fell to just one-third last year.

Western countries are trying to impose new sanctions to cripple the economy, particularly the arms industry, but divisions within the United States and the European Union have slowed the process.

many challenges

Despite Russia’s relatively favorable economic situation, the economy still faces a number of long-term challenges, the impact of which is difficult to assess at this stage.

In 2023, the economy experienced what observers call a “cycle of overheating” due to the sanctions-driven transition.

The increase in domestic demand is primarily the result of increased military supplies rather than particularly favorable conditions for major sectors of the economy.

According to President Vladimir Putin, more than 500,000 Russians have joined the defense industry since 2022, and this figure is expected to increase in order to maintain operations in Ukraine despite the human and economic damage. It shows the effort required.

This dependence on military investment is expected to increase further in 2024, with the government planning to increase defense spending by 70%, which will account for 30% of federal spending and 6% of GDP. This is a first for modern Russia.

The economic recovery has also been accompanied by a pick-up in inflation, which is expected to rise to 7.4% in 2023, reducing purchasing power and hurting the value of the ruble.

The central bank raised interest rates to 16% despite complaints from business leaders worried about rising domestic currency costs.

The 3% unemployment rate also highlights labor shortages, pushing up wages and adding to inflationary pressures.

In the long term, the emigration of hundreds of thousands of Russians following the attack on Ukraine will deprive key sectors of talent.

Some high-tech and aerospace companies that rely on Western technology are also having to turn to third-country partners, a process that takes time and puts a strain on their balance sheets.

Russian authorities expect economic activity to slow in 2024, but growth will continue.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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