Russia’s success in evading Western sanctions has helped its economy outperform expectations ahead of Vladimir Putin’s all but certain re-election on Sunday.
Ever since Russia’s invasion of Ukraine in February 2022, the Russian economy has consistently defied the dire predictions of critics.
That resilience appears to be holding firm as Russians head to the polls between Friday and Sunday for a presidential election that is set to ensure Putin’s rule until at least 2030.
At the start of the war, the International Monetary Fund expected a prolonged recession, forecasting the economy to contract by 8.5 percent in 2022 and 2.3 percent in 2023. While Russia’s economy did shrink in 2022, the contraction was just 1.2 percent, according to government figures. Last year, the economy officially grew 3.6 percent.
According to Castellum.AI, a global risk platform, Russia has been slapped with 16,587 sanctions since the start of the war – the majority of them against individuals. Some $300bn of Russian assets have been frozen.
Other restrictions apply to international debt markets and industrial imports. The most consequential sanctions limit natural gas exports and place a cap on Russian oil prices.
“I can’t say sanctions have had a big impact on me,” Nikolai Zlatarev, a Moscow resident who works in education, told Al Jazeera. “My weekly shop is a little more expensive and I buy more Russian brands. But I doubt that drinking Dobry Cola instead of Coca-Cola will change the election.”
Owing to high oil prices and elevated military spending, Russia has managed to mitigate much of the impact of sanctions. But the costs of prolonged conflict, and the possibility of yet more sanctions, look set to weaken output over the medium term.
Russia’s economy has performed better than expected since the invasion of Ukraine [File: Elena Chernyshova/Bloomberg via Getty Images]
“Extra spending unleashed by war can boost economic activity. But it also represents a redistribution of income away from state services towards the army,” Konstantin Sonin, a political economist at the University of Chicago, told Al Jazeera.
Military spending has swelled in recent years, rising from 3.9 percent of the gross domestic product in 2023 to about 6 percent in 2023 – the highest it has been since the collapse of the Soviet Union. This year, military expenditure is expected to account for almost one-third of government outlays.
Significant investment in military hard and software, together with welfare handouts for the families of soldiers killed in the war, have supported wage growth.
Meanwhile, Russia’s massive energy sector has kept money flowing into state coffers, while local companies have made substantial efforts to substitute Western imports.
“Import substitution always happens with trade restrictions,” Sonin said.
“Most critically, Russia has continued to sell plenty of fossil fuels. It’s true that oil and gas exports have fallen because of sanctions, but elevated prices have kept overall revenues high,” he said.
Sonin added that “it’s important to recall the size of Russia’s fossil fuels sector. Domestically, oil accounts for roughly one-third of tax receipts and half of all export revenue”.
The Kyiv School of Economics estimates that Moscow made $178bn from oil sales last year and that revenues could rise to $200bn in 2024 – not far off the $218bn earned in 2022.
In May 2022, the European Union agreed to cut 90 percent of its oil imports from Russia. Then, in December 2022, Australia and G7 members announced a price cap on Russian crude oil – known as Urals crude – aiming to squeeze Moscow’s finances even further.
Under the rules, non-G7 oil traders can only use Western ships and finance or insurance services provided they pay $60 per barrel, or less – well below the market-rate.
Russia’s massive fossil fuels sector has helped its economy withstand sanctions [File: Tatyana Makeyeva/Reuters]
But Russia has proved adept at countering these measures, according to Switzerland-based energy trader Mohammed Yagoub.
“Russia has built up a large ‘shadow fleet’, which are tankers with opaque ownership and no Western ties in terms of finance or insurance. In addition, Russia has found plenty of non-Western oil buyers at discount prices, China and India most notably,” Yagoub told Al Jazeera.
“Last month, the majority of Russian Urals were sold above $60. But, Western countries have been clamping down,” Yagoub added, pointing to a reported information request from the US Treasury to shipping companies suspected of violating the cap.
“Over the past year, the Kremlin’s been lucky. Western countries don’t want to snuff out Russian oil altogether, because a supply crunch would trigger global inflation. So, they’ve just chugged along much as they were before the war.”
Russia has also found ways to skirt import restrictions by sourcing goods from countries acting as intermediaries for Western goods. For instance, Serbia’s exports of phones to Russia rose from $8,518 in 2021 to $37m in 2022.
Some observers dispute the suggestion that the pressure campaign against Moscow has backfired.
“Sanctions are working,” Liam Peach, a senior emerging markets economist at Capital Economics, told Al Jazeera.
“It’s reasonable to assume that longer journey times for tankers [previously travelling to EU countries], together with high insurance premiums, have added roughly $30 a barrel to the cost of oil sales.”
“On top of elevated military spending, lower oil revenues will see the deficit widen to 3 percent this year, from 1.5 percent in 2023,” Peach said. “That will require scaling back on other areas of state spending, like healthcare and education, which will slow growth over time.”
Peach also pointed out that falling exports have led to sharp currency depreciations, making imports more expensive. To put a lid on rising prices, the Bank of Russia hiked interest rates by 8.5 percent in 2023, which will also slow economic activity.
The UK Ministry of Defence has estimated that more than 350,000 Russians have been killed or injured in the war in Ukraine. [File: Russian Defense Ministry Press Service via AP]
Elsewhere, Putin is grappling with a labour shortage aggravated by his military mobilisation efforts. The UK Ministry of Defence has estimated that more than 350,000 Russians have been killed or injured in the war.
Re: Russia, an analysis and policy network, has estimated that close to one million Russians, roughly 1 percent of the workforce, have emigrated since the invasion.
These losses have compounded looming demographic challenges as Russia’s birthrate was already below the replacement level of 2.1 before the war.
“The upshot is that economic growth will become more constrained on the supply side, and GDP will likely fall from around 3 percent this year to 1.5 percent by the end of the decade. National output will be particularly weak during periods of low oil prices,” Peach said.
“But I don’t think a gradual economic slowdown will be a big threat to Putin,” Peach added. “Russia has experienced its fair share of crises in recent decades. As long as inflation and the rouble remain broadly stable, low growth is unlikely to topple the government.”
For Zlatarev in Moscow, conditions remain far better than the widely remembered economic crises of the 1990s.
“Compared to then, things are OK. Even if the costs of this conflict are high, Putin is still viewed as a net positive,” he said. “Most people I know have said they’ll vote for him.”
OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.
Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.
The change is scheduled to come into force on Nov. 8.
As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.
The program has also come under fire for allegations of mistreatment of workers.
A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.
In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.
The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.
According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.
The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.
Temporary foreign workers in the agriculture sector are not affected by past rule changes.
This report by The Canadian Press was first published Oct. 21, 2024.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
