IMF improves forecast for Russia's economic growth due to increase in military spending

The International Monetary Fund expects Russia's GDP to grow by 2.6%, which is more than double the rate the IMF predicted in October and slightly slower than the 3% growth expected in 2023.

Source: Financial Times

Quote: "Russia’s economy will expand much more rapidly this year than previously expected, according to the IMF, as President Vladimir Putin’s military spending feeds through into wider growth. 

The Russian upgrade, by 1.5 percentage points, is the largest for any economy featured in an update to the fund’s World Economic Outlook, released on Tuesday."

Details: These figures will raise new questions about the effectiveness of numerous rounds of Western sanctions aimed at reducing tax revenues that the Kremlin uses to finance its war in Ukraine.

"It is definitely the case that the Russian economy has been doing better than we were expecting and many others were expecting," Pierre-Olivier Gourinchas, the IMF’s chief economist, told the Financial Times in an interview. 

He pointed out that the main impetus for the development of the Russian economy is provided by the increase in military spending.

Stable prices for raw materials (oil, gas) also play an equally important role, allowing for high revenues from their exports and making a significant contribution to the overall GDP dynamics.

But Gourinchas noted that in the long term, the potential growth of the Russian economy is likely to be lower than it was before the full-scale invasion of Ukraine almost two years ago.

The economic bloc of the Russian government also points to the risks of economic overheating. In December, Central Bank Governor Elvira Nabiullina compared Russia to a car trying to go faster than it can – "we might go fast, but not for long." 

Background:

Russia's economy is noticeably overheating and is increasingly dependent on the continuation of the war.

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