Even though in April 2023, the IMF raised its forecast for Russia's GDP growth from 0.3% to 0.7%
, many sources indicate that this projection reflects a low-base effect from the previous year (when the country’s GDP dropped by 2.1%) and could be misleading in a way that camouflages negative economic trends. Meanwhile, Moscow’s “anomaly
” – better than expected performance in the face of the most extensive sanctions applied in modern history – has likely come to an end. Economic miracles and tough reality
Russia’s initial capacity to mitigate the severity of war-related economic imbalances was mostly attributable to favorable market conditions, such as unusually high earnings from energy exports, an accumulation of reserves and the Central Bank’s competent anti-crisis policy. But the present reality is difficult to ignore. No oil and gas price records are expected in 2023, while Moscow’s oil revenues are pressured by an oil cap, and its share in the European gas market continues to drop, from almost 50% at the beginning of 2021 to below 20%
A decrease in export revenues by over one third, combined with soaring imports, has dramatically reduced the current account surplus. Meanwhile, growing military spending has created a budget deficit that could exceed 4% of GDP. The widening deficit is forcing the government to spend money from the National Wealth Fund (NWF), to increase borrowing through bond issuance and to consider raising corporate taxes. The situation has also been aggravated by the fact that the West has blocked Russia’s access to almost half of its gold and foreign exchange reserves.
The adjustment that has occurred within the Russian economy, after a year and a half of the war against Ukraine, has come through a swift and painful pivot from Western to Asian markets. The trade turnover between Russia and China in 2022 increased by almost 30% to a record $190 billion
Almost 75% of all Chinese imports from Russia ($85 billion)
came from mineral fuels. The Kremlin would like to pass off that supply diversion as a new economic model
based on import substitution, the reduction of regional and social disparities inside Russia, and the rewiring of industries on new technological platforms, as well as a new form of international engagement.
Behind those aspirations, however, some pro-Kremlin experts
are seeing Potemkin villages. Referring to a theory of “economic gravity
,” they are concerned about the unbalanced bilateral economic cooperation with Beijing, and the high probability that the country’s economy will be "satellited" by China, whose GDP is 10 times bigger than Russia's. They also suggest the emergence of an asymmetric interdependence that would tempt Beijing to demand political concessions from Moscow.
If current trends continue, over the next five years more than 40% of Russia's total foreign trade turnover will likely come from China ($270 billion
), with a major part of it fully transferred onto yuan settlement. As of March 2023, half of all NWF liquid assets were already in yuan, which de facto has become a reserve currency for Moscow despite its only partial convertibility.
Although China is interested in acquiring some Russian military and nuclear technology, Russia remains mainly a supplier of raw materials, and on less favorable terms than it had with the West.