Foreign direct investment (FDI) in Russia had reached a substantial level of about $500 billion before the invasion, with various Western countries investing in the country.
by Gülsüm Akbulut
Russia invaded Ukraine on February 24, 2022. In response, the U.S. and EU, joined primarily by Japan, Canada, Australia, and South Korea, imposed one of the most far-reaching sanctions on Russia. While sanctions have already weakened the Russian economy following Russia’s annexation of Crimea in early 2014, the widespread suspension of economic, financial, and trade relations with the West in 2022 and 2023 appears to have significant long-term implications for maintaining the country’s economic strength.
Since the early 2000s, Russia has experienced various economic fluctuations, some of which are due to global economic conditions. Similar to other countries, the global economic crisis of 2008-2009 and the demand and supply constraints of the Covid 19 pandemic hit the Russian economy hard. In addition, Russia has faced economic challenges since 2014 due to sanctions imposed over the annexation of Crimea and the invasion of Ukraine. Average growth from 2014 to the present was 0.5 percent, with negative growth of 2.2 percent in 2022. Compared to the robust growth rates in the first half of the 2000s, which reached 8.5 percent in some years (Figure 1), it appears that the Russian economy will not reach this performance for a long time after the invasion. While the IMF estimate points to positive growth rates for 2023, other prominent international institutions and even the Russian Central Bank expect the economy to be in recession (Figure 1). On the other hand, the IMF’s expectations for the coming years are not optimistic. In March 2023, IMF Managing Director Kristalina Georgieva stated that the Russian economy is expected to contract by 7 percent in the medium term.
 |
| A Russian soldier launches a drone during the joint Russian, Belarusian and Serbian military exercise "The Slavic Brotherhood" at the military ground Kovin, near Belgrade, on November 7, 2016. (Photo: STRINGER/AFP via Getty Images) |
As Russia’s main source of revenue is energy, Russia’s economic challenges are closely linked to the volatility of prices of and demand for its energy products. In 2021, energy products accounted for more than 50 percent of export revenues, 50 percent of government revenues, and nearly 20 percent of GDP and the European Union was the main consumer of Russian energy. In 2022, major European countries, particularly Germany, continued to import oil and gas from Russia due to their heavy dependence on Russian energy, while making efforts to develop alternative energy sources. Germany increased coal production and extended the life of its remaining three nuclear power plants. Still, Germany remained the largest importer of Russian fossil fuels after China in one year after the invasion. Germany, the Netherlands, Italy, Poland, France, Belgium, and other EU countries were still importing in 2022, but at a declining rate as Russian revenues from EU countries fell by about 85 percent.
In fact, the restriction on energy imports from Russia had a negative impact on EU countries, especially Germany. When the EU began imposing certain restrictions on exports to and imports from Russia in 2022, Russia retaliated by halting natural gas supplies to Europe by indicating equipment problems, maintenance needs, and gas leaks. These restrictions have hurt not only the Russian economy but also European countries. The energy restriction contributed to a decline in Germany’s growth rate in 2022, and zero growth expectation in 2023.
Click here to read the full text of this essay on our main site
Gülsüm Akbulut is Director of Global and Turkish Economic Studies, Foreign Policy Institute in Ankara
 in Russia had reached a substantial level of about $500 billion before the invasion, with various Western co...){kind=link}
Post a Comment