The Russian authorities have announced that the economic downturn caused by the Western economic embargo is over. The price of prosperity
“We have come out of the crisis and are starting to develop quite rapidly. It is something special,” Dmitri Peskov, Vladimir Putin’s press secretary, effuses
. “According to every forecast, after the imposition of sanctions, Russia should have fallen into the abyss, both economically and socially, but it did not. It will be studied how this happened and what the drivers were in our country.”
Indeed, in April-June 2023, Russia’s GDP was
4.9% higher than it was in April-June 2022. The fall that was recorded
then (-4.0%) is now completely pared.
But this prosperity comes at a price. Recent months have seen the collapse of the national currency and a surge in inflation.
In January 2023, the dollar cost
70 rubles. In April-May, it was 80 rubles. At the end of July, it went over the 90-ruble mark, and by mid-August it had reached 100 rubles. This came as a surprise not only to the amateurs who make political decisions in Russia, but also to most of Putin’s technocrats, who quite professionally manage the financial bloc of his government.
The pickup in consumer price inflation was also a surprise. Back in April 2023, the SAAR (seasonally adjusted annual rate of inflation) was
3.7%, fully in line with the official target of the Central Bank (4.0% per year). But it accelerated to 5.0% in May
, to 6.2% in June
and to a critical 10.4% in July.
In some weeks of July, the SAAR reached
as high as 16%, more than four times the norm. Lost strategists
The actions of the captains of the Russian economy speak more of their confusion than decisiveness.
Anton Siluanov, the head of the Ministry of Finance, while saying
that the budget deficit in 2023 would be bigger than planned, did not acknowledge that it would be much bigger. The Central Bank, meanwhile, raised the key rate for the first time in a year and a half
from 7.5% to 8.5%, though this did not stop the weakening of the ruble. The next hike, to 12.0%, took place just three weeks later, on August 15, when the ruble’s tumble had become serious.
On February 28, 2022, amid the panic that had begun across the Russian economy due to the invasion of Ukraine, the same state financiers hiked rates from 9.5% to 20.0% and introduced several other extraordinary measures. In just 12 days, the ruble stopped falling. Now they are looking up in bewilderment, putting the blame on each other and redoing their forecasts.
The Central Bank has cautiously made it clear that it is not happy with the ballooning government spending. In Russian bureaucratic language, it sounded
like this: “The Central Bank proceeds from the strategy of budget normalization implemented by the Ministry of Finance with a gradual return to the budgeting of expenditures in accordance with the fiscal rule.”
The “fiscal rule” regulates state buying and selling of convertible currencies. Its purpose is to balance the budget and reduce swings in the ruble. It was adopted in peacetime, when budget spending was controlled.