Russian economy shrank 2.1% in 2022, much less than expected

The economy defied fears of a recession and previous predictions that it would contract by more than 12 percent.

A logo of a newly opened Stars Coffee in the former location of a Starbucks in Moscow, Russia, Tuesday, Jan. 24, 2023. Russian singer and entrepreneur Timur Yunusov, better known as Timati, along with Russian restaurateur Anton Pinskiy, bought the Starbucks stores following the company's withdrawal from Russia after troops were sent into Ukraine.
A newly opened Stars Coffee outlet in the former location of a Starbucks in Moscow, Russia [File: Alexander Zemlianichenko/ Associated Press]

Russia’s economy contracted 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 European nations and the United States.

Rosstat’s first gross domestic product (GDP) estimate for 2022 was a marked improvement on forecasts made soon after the conflict began. In 2021, the economy saw a 5.6 percent year-on-year rise.

The economy ministry had at one point predicted a contraction of more than 12 percent last year, exceeding the falls in output seen after the Soviet Union collapsed and during the 1998 financial crisis.

In April 2022, the World Bank predicted a contraction of 11.2 percent.

“Due to its invasion of Ukraine, Russia faces the largest coordinated economic sanctions ever imposed on a country,” the World Bank said in a statement.

“Russia’s economy will be hit very hard, with a deep recession looming in 2022. GDP is expected to contract by 11.2 percent, with little recovery in the ensuing two years,” it added.

Before the conflict in Ukraine began, the Russian government had expected GDP growth of 3 percent in 2022.

Manufacturing industries and wholesale and retail trade were among the sectors that declined in 2022, while agriculture, hospitality, construction and mining all registered growth.

Public administration and “military security” gained 4.1 percent in 2022, the statistics agency said, adding to a 3.3 percent rise in 2021. President Vladimir Putin in January paid tribute to the defence sector for supporting the economy.

Increased military spending is smoothing out a drop in the country’s industrial production, analysts say.

Net exports increased to 12.8 percent from 9.3 percent, “due to the prices of exported fuel and energy products being significantly above imports”.

Russia’s current account surplus hit a record high in 2022, as a fall in imports and robust oil and gas exports kept foreign money flowing in, despite Western efforts to isolate the Russian economy over the conflict in Ukraine with successive rounds of sanctions.

In January, the surplus shrank 58.2 percent year-on-year to $8bn, squeezing Russia’s capital buffers at a time when Moscow is ramping up budget spending.

The country’s central bank on Monday estimated the 2022 economic contraction at 2.5 percent.

Forecasts for 2023 are varied. The government expects a decline of 0.8 percent, while the International Monetary Fund believes the economy could grow by 0.3 percent as commodity exports have proved resilient.

Source: Al Jazeera and news agencies