Russia's economy is booming despite sanctions: Rich Russians and high risks!

The Russian economy is expected to grow by 3.6 percent in 2023, which is the strongest growth in a decade. This comes despite ongoing US and EU sanctions, which have so far had little success in affecting Russia's economic stability Focus Online reported.

Defense spending plays a crucial role in this economic growth. For 2025, Russia has planned a defense budget of 13.5 trillion rubles, which corresponds to around 130 billion euros. In this context, the defense industry has created 520,000 new jobs, although 160,000 positions remain unfilled. Average salaries in Russia are expected to increase by 19 percent in 2024 compared to last year, leading to an increase in consumer spending.

Economic challenges and risks

Despite the growth, the Russian economy is at risk of overheating due to high demand for credit and rising wages. To counteract inflation, the Russian central bank has raised interest rates from 7.5 percent to 21 percent in 2023. In October and November 2023, the inflation rate was 11.1 percent. Bank lending is increasing, including to customers with poor credit ratings, increasing the risk of a banking crisis in the next two years. The high interest burden makes it difficult for many companies to service their debts, which has doubled the interest burden. In addition, the banking sector's equity base is low, which weakens its ability to resist loan defaults.

The impact of the Ukraine war and sanctions is loud fr.de clearly noticeable in the Russian economy. Still, average wealth in Russia increased by almost 20 percent in 2023, while the total number of US dollar millionaires increased. Between 2008 and 2023, average wealth per adult in Russia increased by 608 percent (in rubles). On July 1, 2024, Russia was upgraded from middle-income countries to the category of high-income countries by the World Bank Group.

In addition, economic growth in 2023 was influenced by increases in the trade (6.8 percent), financial sector (8.7 percent) and construction (6.6 percent). At the same time, the sanctions are putting a strain on government revenue from the oil and gas business, which fell by six percent to 1.23 trillion rubles in April 2023. President Putin also faces challenges finding buyers for Russian gas as negotiations over a gas pipeline to China have stalled. Several Chinese banks have also severed ties with Russia and suspended payment transactions, increasing concerns about Russia's solvency. The central bank plans to raise interest rates by 200 basis points to 18 percent in July 2024 to combat high inflation. Overall, the Russian economy is heavily dependent on high military spending, which experts see as problematic for a sustainable war economy.