Zhirnov said the economy would not regain its 2021 size until 2025, “and the level of GDP that could have been achieved in the absence of last year’s crisis would hardly be reached in the next 10 years”.
Moscow has been seeking new markets in Asia for its oil and gas exports, the lifeblood of the economy, and has maintained supplies of consumer goods through a gray import scheme. It has increasingly turned away from Western markets, which helped fuel its post-Soviet growth, and is turning inward.
Putin said the “de-dollarization” drive has meant the ruble has doubled its share in Russia’s international settlements. Meanwhile, banks are looking for domestic ways to revive profits.
Putin called on the business elite to invest in Russia, saying that ordinary Russians have no sympathy for their lost yachts and mansions.
‘Guns Not Butter’
He also argued for sustainable domestic development and a self-sustaining economy, recalling the criticism leveled against Soviet leaders that focused on military spending, they neglected the welfare of the people.
“There is a saying ‘Guns not butter’,” Putin said. “The country’s defense is certainly the most important priority, but when solving strategic tasks in this area, we must not repeat the mistakes of the past, we must strengthen our economy.” should not be destroyed.”
But Russia is increasing military spending, and taking money away from hospitals and schools will ultimately hinder the development of civilian economic infrastructure.
Rising spending and slumping revenues resulted in a $25 billion budget deficit in January, while the current account surplus more than halved from a year earlier.
Higher oil prices usually help top up the national wealth fund for rainy days, but with its hydrocarbon exports now subject to restrictions and price caps, Russia is currently selling Chinese yuan from the NWF to cover the deficit. Is.
While the finance ministry has promised that the deficit will not spiral out of control, the sinking of the fund risks eroding Moscow’s future spending capacity and risks inflation.
The central bank, whose analysis of Russia’s economic health is consistently more pessimistic than Putin’s, has warned that the widening budget deficit is inflationary and said it is more likely to hike than cut interest rates this year to 7.5%. .
Reaching this year’s oil and gas revenue target is looking increasingly problematic, Oleg Vyugin, a veteran economic official, wrote in a report this month, especially as prices for Russia’s Ural oil blend plunged.
To meet budget plans, Russia would have to double its planned NWF spending, risking higher inflation and forcing the central bank to raise borrowing costs.
“The implementation of such a budget is the path to a gradual erosion of financial stability and a further decline in real wages of the population,” Vyugin wrote.
Real disposable income shrank 1% last year, prompting Russians to save more and spend less. Retail sales fell 6.7%.
Alexandra Prokopenko, an independent analyst and former adviser to the central bank, said Russians’ strong propensity to save is a sign of economic uncertainty.
Prokopenko, who also highlighted the opportunity cost of the economy, said Russia’s financial leadership has become used to handling crises. Similar officials have been in charge since the global financial crisis in 2008, steering the country through deteriorating relations with the West.
“We can say with certainty that the picture is not black and white. Putin can be proud of his ‘Fortress Russia’ that his financial leadership has built for him,” she said. “But it was made at a high cost.”