Even in normal times the Russian economy is about as transparent as a Siberian snowstorm—and these are not normal times. Since Russia’s invasion of Ukraine the Central Bank of Russia (cbr), and Rosstat, the official statistics agency, have stopped publishing data on everything from trade to investment; many questions the reliability of those numbers that are still emerging. Investment banks, no longer advising clients on Russian companies, have pared back their research efforts. Multilateral organisations have pulled economists out of the country.
In the blizzard, a furious debate has erupted about how the Russian economy is performing. A recent paper by five researchers at Yale University, which has garnered widespread attention, says that a retreat of Western firms and sanctions are “crippling” it. Any apparent economic strengths are a mirage. “Putin-selected statistics are then carelessly trumpeted across media and used by reams of well-meaning but careless experts in building out forecasts which are excessively, unrealistically favourable to the Kremlin,” the researchers argue. Others are less gloomy. “The economy is not collapsing,” wrote Chris Weafer, a respected Russia-watcher, in a recent paper. Where does the truth lie?
After Russia invaded Ukraine, its economy went into free fall. The rouble lost a quarter of its value against the dollar. The stockmarket crashed, forcing regulators to suspend trading. Western companies pulled out of Russia, or pledged to do so, by the hundred, as their governments slapped on sanctions. Within a month analysts had revised down their forecasts for Russian gdp in 2022 from growth of 2.5% to a decline of close to 10%. Some were even gloomier. “Experts predict Russia’s gdp will contract up to 15% this year, wiping out the last 15 years of economic gains,” the White House gloated.
Both sides of the debate agree the country is still hurting. Massive increases in interest rates in the spring, designed to stabilise the collapsing rouble, along with the withdrawal of foreign businesses, have pushed it into recession. In the second quarter of the year gdp fell by 4% year on year, according to official figures. Many of the country’s 300 one-industry cities hurt by sanctions are in a full-blown depression. Lots of people, especially educated types, have fled; others are shifting assets out of the country. In the first quarter of 2022, the latest available data, foreigners pulled out $15bn-worth of direct investment, easily the worst figure on record. In May 2022 Russian remittances to Georgia were an astonishing ten times higher in dollar terms than the year before.
But The Economist’s analysis of data from a wide variety of sources suggests that Russia’s economy is doing better than even the most upbeat forecasts predicted, as sales of hydrocarbons have fuelled a record current-account surplus. Take, for example, a “current-activity indicator” published by Goldman Sachs, a bank, a real-time measure of economic growth. This declined dramatically in March and April, if not on a scale comparable with the global financial crisis of 2007-09 or even the invasion of Ukraine in 2014. In subsequent months it has recovered.
Other measures tell a similar story: of a recession, but not a deep one, at least by Russia’s volatile standards. In June industrial production was 1.8% down on a year earlier, according to a paper published by JPMorgan Chase, another bank. An index of service-sector growth, compiled by sending surveys to managers, shows a smaller hit than during previous crises. Electricity consumption seems to be growing again, after an initial decline. The number of railway loadings, a proxy for goods demand, is holding up.
Meanwhile, inflation is easing. From the start of 2022 to the end of May consumer prices rose by about 10%. The fall in the rouble made imports dearer; the withdrawal of Western companies cut supply. But prices are now falling, according to Rosstat. An independent source, published by State Street Global Markets, a consultancy, and PriceStats, a data firm, derived from online prices, shows similar trends. In its public statements, the cbr now worries about falling prices as well as inflation.
A stronger rouble has cut the cost of imports. And Russians’ inflation expectations have fallen. A data set from the Cleveland Federal Reserve, Morning Consult, a consultancy, and Raphael Schoenle of Brandeis University shows expected inflation over the next year has dropped from 17.6% in March to 11% in July. With plentiful gas, Russia is also unlikely to see a European-style surge in inflation produced by higher energy prices.
Falling prices are not the only thing helping households. True, the unemployment rate, at an all-time low of 3.9% in June, is misleading. Many companies have furloughed staff, some without pay, in order to avoid registering redundancies. But there is not much evidence of a jobs calamity. Data from HeadHunter, a Russian jobs site, suggest that the economy-wide ratio of jobseekers to vacancies rose from 3.8 in January to 5.9 in May—making it harder to find a job than before—and then fell back a bit. Data from Sberbank, Russia’s largest lender, suggests that median real wages have sharply increased since the spring.
In part because the labour market is holding up, people can keep spending. Sberbank’s data suggest that in July real consumer spending was pretty much unchanged from the start of the year. Imports fell sharply in the spring, in part because many Western firms stopped supplying them. Yet the decline was not severe by the standards of recent recessions and imports are now bouncing back fast.
Three factors explain why Russia keeps beating the forecasts. The first is policy. Vladimir Putin has little understanding of economics, but he is happy to delegate economic management to people who do. The cbr is stuffed with highly qualified wonks who took swift action to prevent economic collapse. The doubling of interest rates in February, in combination with capital controls, shored up the rouble, helping to cut inflation. The general public know that Elvira Nabiullina, the bank’s governor, is serious about keeping a lid on prices, even if this does not make her a popular figure.
The second relates to recent economic history. Sergei Shoigu, Russia’s defence minister, may have been on to something in February when, according to the Washington Post, he told the British government that Russians “can suffer like no one else”. This is the fifth economic crisis the country has faced in 25 years, after 1998, 2008, 2014 and 2020. Anyone older than 40 has memories of the extraordinary economic tumult brought about by the fall of the Soviet Union. People have learned to adapt, rather than panic (or revolt).
Parts of Russia’s economy have long been fairly detached from the West. That comes at the cost of lower growth, but it has made the recent increase in isolation less painful. In 2019 the stock of foreign direct investment in the country was worth about 30% of gdp, compared with the global average of 49%. Before the invasion only about 0.3% of Russians with a job worked for an American firm, compared with more than 2% across the rich world. The country requires relatively few foreign supplies of raw materials. Thus the extra isolation has not had much of an impact on the figures to date.
The third factor relates to hydrocarbons. Sanctions have had a limited impact on Russian oil output, according to a recent report by the International Energy Agency. Since the invasion Russia has sold in the region of $85bn-worth of fossil fuels to the eu. The way in which Russia spends the foreign currency thus accumulated is something of a mystery, given sanctions on the government. There is little doubt, though, that these sales are helping Russia to continue to buy imports—not to mention pay soldiers and buy weapons.
Until Mr Putin leaves office, Western investors will be reluctant to touch Russia. Sanctions will remain. The cbr acknowledges that while Russia does not rely much on foreign materials, it is desperate for foreign machinery. Over time, sanctions will take a toll, and Russia will produce goods of a worse quality at a higher cost. But for now its economy is stumbling along. ■
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
