Russia's economy jumped 3.6 percent last year despite sweeping Western sanctions as the government cranked up military spending amid its ongoing invasion of Ukraine.
The expansion represented a sharp rebound from a 1.2 percent decline in 2022 when the country initially struggled amid a tsunami of sanctions implemented by Western governments over the invasion of its neighbor.
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The data on the country's economic growth in 2023 was reported on February 7 by Rosstat, the Russian statistics office.
Russia ramped up defense spending in 2023 to bolster its struggling war effort as it figured out ways around sanctions on key industries and technologies.
“We think [the data tells]a broadly accurate picture of an economy that was pumped up last year by spending on the war effort and that was able to adapt to sanctions and isolation from the West better than most had thought possible,” Liam Peach, senior emerging market economist at Capital Economics, said following the publication of the economic data.
He expects the Russian economy to expand 3 percent this year, surpassing the International Monetary Fund’s 2.6 percent forecast, on the back of high military spending.
The United States and Europe sought to cripple Russia’s economy following the launch of the invasion to undermine its ability to wage war.
The West imposed a price cap on Russian oil -- the Kremlin’s main source of budget revenue -- banned exports of critical technology, and cut off the country from Western financial markets.
Yet Russia has found ways around the limitations, rerouting oil exports to Asian countries, namely China and India, and using third countries, such as Kyrgyzstan, to import microprocessors and other banned items.
Russia’s economy last year was driven by a surge in manufacturing and construction for the war effort as well as retail consumption, a reflection of the tight labor market and high wages, according to state data.
Russian unemployment has fallen to post-Soviet lows in part as hundreds of thousands of men are sent to the front lines in Ukraine just as demand for workers to churn out goods and weapons for the military increases.
Meanwhile, hundreds of thousands of working-age people have fled the country and more than 300,000 have been killed or wounded in the fighting, according to the United States, adding to the labor pressure.
To attract men to the front, Russia is paying wages that are multiple times the average salary in many of the country’s regions, triggering a spending boom.
However, robust government and retail spending is leading to a surge in prices, forcing the Central Bank to ramp up interest rates to cool the economy.
The war effort is also rerouting money away from long-overdue investments in pipes, roads, schools, health care, and other sectors.
A growing number of towns and cities have reported major problems with their heating and hot water systems since the start of the year.