Russian economy records 2.1% low in 2022

By Yassmine Elbehnaihy On Feb 21, 2023

Russia’s invasion of Ukraine represents a doubling down of President Putin’s strategy to seek legitimacy from “great power status,” rather than economic performance. Photo Credit: Getty Images

Russian economy has declined by 2.1 percent last year, the Federal Statistics Service said on Monday, shrinking less than expected despite its invasion of Ukraine last February and sanctions imposed by EU and U.S.

Despite skepticism about the reliability of the released data, many experts have shown their surprise at the resilience of the Russian economy, which has been helped by oil prices hike and military spending.

The Institute for International Finance had predicted a decline of the Russian economy by 15 percent in 2022, while U.S. President Joe Biden said it has the potential to be cut in half.

Despite aforementioned predictions, Russia was able to resume exporting energy through most of 2022, while global oil prices hiked, petroleum products and other Russian exports like food and fertilizers helped in boosting Russia’s revenues.

Western limits to energy exports were applied gradually during the year, and while imports to Europe fell sharply, buyers from China, India and other regions stepped in to buy the oil left by Europe, according to BBC.

Some sectors saw a decline in 2022, like manufacturing and retail trade, other sectors like agriculture, construction and hospitality saw an increase, according to Russia’s Federal Statistics Service.

Other means like producing equipment for the Russian armed forces have kept the country’s factories afloat, helping boost the economy by producing weapons instead of cars. Data also showed the military security and public administration expanding by 4.1 percent last year.

The EU imposed sanctions are not entirely strict, as attempts to isolate Russia from the Western financial system have been showing to fail, with traders finding other means to get money into and out of Russia. Traders have been resorting to barter, routing transactions through countries that are not a part of the sanctions and by using cryptocurrencies.

Despite the sanctions not having the desired strict impacts, it still had significant and long-term effects on the Russian economy. Russia has been facing difficulties with high tech imports like microchips, which can lead to a hold back in manufacturing.

The Russian government is expecting the economy to decline by 0.8 percent, but the International Monetary Fund expects it to grow by 0.3 percent, thanks to strong exports, BBC reported.