The Monetary Fund admits: Putin’s recipe works. The war economy makes GDP soar

The estimates were all off. At regular intervals for over two years, international organizations have been forced to revise upwards the growth estimates of the Russian economy, each time postponing by a few semesters or years the actual spread of Western sanctions imposed after the war in Ukraine. For the umpteenth time the Monetary Fund has had to review its forecasts for the economy led by Vladimir Putin: this year the IMF expects a GDP of +3.2%. It should go differently – but the conditional is a must given the precedents – in 2025 when growth is expected to reduce, however remaining always higher than the latest forecasts and standing at 1.8%.

Numbers put in black and white by the Fund in its World Economic Outlook for April 2024. The technicians of the Washington-based institution have openly spoken of a “significant” growth in Russia, based on three factors. The first is the most obvious, that is, having brought its industrial apparatus and its social fabric towards a war economy. In fact, among the economic boosters the increase in government spending on security and defense is clearly mentioned.

But it is not only the military state apparatus that is once again pushing Russia towards growth rates that the Eurozone can currently only dream of, relegated as it is to a paltry 0.8% for this year. The second contributing factor is in fact the strengthening of investments by companies, which also grew to make up for the flight of Western companies following the conflict that began in February 2022 and the consequent sanctions imposed by the European Union, the United States, Canada and the United Kingdom .

“We have revised Russia’s growth for 2024 and 2025. There are several factors for Russia’s resilience, including stable oil volumes and strong private consumption,” the IMF explained. But the role of Russian economic entities is also partly linked to the war, with increasingly larger military orders which have not only increased federal spending but also driven private investments.

According to IMF observers, 2023 was characterized by a cycle of overheating of the Russian economy, with strong federal spending and wage increases linked to labor shortages, in particular due to the departure of hundreds of thousands of Russians to the front or abroad. In February 2024, the unemployment rate reached an all-time low of 2.8% of the active population, a sign of persistent tensions in the labor market. For 2025, the IMF expects less dynamic growth, at 1.8%, as “the effects of high investment and robust private consumption, supported by rising wages in a tight labor market, fade.”

The restructuring of the economy was also accompanied by high inflation (7.7% in March) which boosted nominal GDP. But the last factor that has kept the Russian economy vital of the three cited by the Monetary Fund concerns oil. Energy raw material subject to the harshest sanctions decided by the G7 countries, but also most evaded. And the IMF, implicitly, admits the failure of Western measures. He does so when he writes that “the increase in Russian oil exports due to the expansion of the fleet of non-Western-aligned oil tankers carrying Moscow crude and Russia’s creation of its own marine insurance have further increased the global energy supply”. Free interpretation: the energy sanctions passed off as lethal to block the Russian war machine have been largely circumvented, and those who imposed them closed their eyes so as not to destabilize the market, since Russia represents the third largest producer of crude oil in the world .

Further confirmation comes from what the IMF writes: “Russian oil, exported mainly to China and India, has mostly been above the G7 price limit since the second half of 2023, at a discount of 15-20 dollars (based on Argus data)”.

The proceeds from oil activities have continued to flow into the Kremlin’s coffers, while the Eurozone is the one that has paid the most for the cost of the energy crisis and the inflationary spiral. According to the regional outlook for Europe released by the IMF, “a soft landing for EU economies, in which inflation returns to target with a moderate economic cost in terms of growth, is within reach, but crosswinds could make it difficult achieve price stability while ensuring a lasting recovery.” According to Washington, “a possible escalation of Russia’s war or a widening of the conflict in the Middle East could increase uncertainty and affect supply chains and raw material prices.” Events from which Europe would only lose out.