Russia's economy rises thanks to 'shocks', average income reaches over 14,005 USD, despite broken relations with the West

The World Bank (WB) has just announced the upgrade of Russia from an “upper-middle-income country” to a “high-income country” with a gross national income (GNI) of $14,250 in 2023.

Russians stroll and take photos on the streets of Moscow. (Source: Moskva News Agency)

Russia can continue to hope for further growth due to its wartime economic orientation. According to the World Bank, “economic activity in Russia was affected by a large increase in military- related activity in 2023.” The US-based organization also noted that Russia's economic upgrade was driven by growth in trade (+6.8%), the financial sector (+8.7%), and construction (+6.6%).

“These factors led to an increase in both real (3.6%) and nominal (10.9%) GDP, and an 11.2% increase in Russia’s GNI Atlas per capita,” the World Bank said.

The world's economies are divided into four groups based on a measure of per capita GNI in US dollars. The World Bank's 2024-25 classification for "high-income" countries has raised the threshold to $14,005 or more.

On this occasion, Bulgaria and Palau, along with Russia, became "high-income economies" with GNI per capita of $14,460 and $14,250 respectively.

Nominally, Russia ranks 72nd in GNI per capita and 53rd in purchasing power parity.

Also studying the Russian economy, the Vienna Institute for International Economic Research (Wiiw) has just revised its growth outlook for Russia – which is now leaning towards a war economy. According to Wiiw, the country is expected to grow strongly at 3.2%, similar to 2023. However, severe labor shortages and high interest rates will limit the growth rate of the Russian economy to around 2.5% in the coming years.

Approximately one-third of Russia's federal budget—6% of GDP—flowed into the wartime economy. This direction benefited many other sectors.

According to a Russia expert at Wiiw, high salaries for frontline soldiers and payments to veterans and their families are also a factor leading to a top-down redistribution of income, which helps increase people's earnings.

Meanwhile, the economic shock caused by layers of Western sanctions has helped Russia reshape its industries. A new study by the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP) shows that the main losses were suffered by export-oriented industries. And the winners are the companies that ensure domestic demand.

Experts believe that current dynamics suggest this fragmentation of Russian businesses will continue. Government support and domestic demand will remain key conditions for production growth.

The Russian economy has faced major external shocks since 2022. These shocks are caused by the cessation of cooperation with foreign partners, the closure of some traditional export markets, and the disruption of traditional supply chains. According to TsMAKP experts, these factors are further exacerbated by the closure of access to external financial markets, volatile global commodity prices, and fluctuating exchange rates.

Along with the negative consequences, there have also been positive developments for some sectors. Specifically, the scale of government demand has recently expanded significantly. The import substitution process has accelerated, and preferential loan programs for businesses have been implemented, helping to offset high interest rates in the market.

Commenting on the World Bank's decision, CEO Roman Marshavin told TASS, "The World Bank's move is a recognition of Russia's economic policies over the past decade, despite financial and trade restrictions." This shows that Russian economic growth has continued even after the US and its allies imposed thousands of sanctions on the country.

Meanwhile, the World Bank stated that Ukraine's economy has moved from "lower-middle-income" to "upper-middle-income" status after economic growth was recorded in 2023.

However, Russia's focused attacks on Ukraine's energy infrastructure have left increasingly deep scars on the Ukrainian economy. WIW has now revised its forecast for Ukraine's economic growth down by 0.5 percentage points to 2.7% for 2024 compared to its spring forecast. The economic situation in Ukraine is expected to improve gradually, but the lingering effects of the conflict and damage to infrastructure could continue to impact the country's growth prospects for the next few years.

The ongoing conflict between Russia and Ukraine has led to significant economic challenges not only for Kyiv but also for the whole of Europe. Russia's military campaign in Ukraine has strained economic relations between Russia and many European countries, disrupting traditional supply chains in the region.

The destruction of Ukraine's energy infrastructure has reduced the EU's dependence on Russian energy sources, potentially leading to a shift in overall economic relations in Europe.

Source: https://baoquocte.vn/kinh-te-nga-thang-hang-nho-nhung-cu-soc-thu-nhap-binh-quan-dat-tren-14005-usd-bat-chap-dut-gay-quan-he-voi-phuong-tay-277299.html