Putin Claims Russian Economy Has ‘Recovered'

Dec. 11—Russian President Vladimir Putin’s keynote speech to the “Russia Calling! Investment Forum” Dec. 4 was about much more than whether using the dollar less in trade would bring a 100% tariff on the BRICS countries from U.S. President-elect Donald Trump. The scope of his 25 minute speech included a detailed review of the condition and performance of the Russian economy, after 33 months of monster sanctions and savage financial warfare from the U.S. Treasury and European Commission trying to deliver Russia a “strategic defeat.” For 15 years now, “Russia Calling!” sponsored by VTB Bank has gathered business representatives from many countries, and in his keynote remarks, in the forum’s two-hour plenary this year, President Putin presented them with plenty of data and plans to think about.

Putin said, “We often hear people from the political, military, or economic fields say that these [NATO] countries set the task of inflicting a strategic defeat on Russia, including in the economy and technology, to drastically weaken our country’s manufacturing industry, finance and services; to create an insurmountable shortage of goods on our market; to destabilize the labor market; and to lower the living standards of our citizens.… Following a challenging period, the Russian economy has not only fully recovered, but is also living through qualitative structural changes, which is vitally important and, perhaps, is the most important outcome of our work in the economy over the past two to three years.”

Here are only the introductory matters Putin presented:

GDP grew by 3.6% in 2023, and 4.1% from January-October 2024;

“The growth mainly comes from the manufacturing industries and sectors with high added value. Thus, in a matter of ten months, our manufacturing industry has grown by more than 8%, 8.1% to be precise. The automotive sector and mechanical engineering are growing faster than other sectors…. In September, the number of IT employees grew by 8.1% year-on-year, and by almost 4%—3.9%—in the manufacturing industry.”

Referring to very low unemployment even among youth—Russia is mobilized for war and facing labor shortages—Putin added: “From January to October this year, the country’s consolidated budget surplus, inclusive of extrabudgetary funds, amounted to approximately 2.5 trillion rubles [$25 billion]. Meanwhile, spending—I want to emphasize this, and I believe that people present here understand what I am talking about—amounted to less than 35% of GDP, on a par with the 2021 levels.”

“Inflation stands at 8.8% year-on-year....” Putin claimed. “As I have already mentioned, the primary, fundamental response to the inflation challenge would be, undoubtedly, to increase supply of goods and services on the market so that their volume meets the domestic demand, both from citizens and businesses that are planning to upgrade and expand their production, expand their capacities, invest in construction, in purchasing equipment and implementing development projects.

“In this regard, I would like to ask the Government to more clearly set the priorities concerning support measures for industries from the federal budget….”

“Yes, we must remember that we are operating under the objective conditions of inflation containment, adopting tough approaches to our budgetary policy, and we must adjust our credit policy accordingly.”

Surprisingly, the Russian President reported that “since August [2024], the retail lending portfolio has essentially stopped growing…. Corporate loans are still growing, which means that companies are implementing their investment plans, and in retail lending, of course, there has been a certain decline. And it was exactly the goal the financial and economic authorities have been trying to achieve....”

“Despite current challenges, Russian businesses continue to invest in fixed assets. Their investments continue to grow for the third year in a row despite all the problems we are facing or those that outside players have been trying to create for us.… In 2022, investment grew by 6.7%; in 2023, the growth was 9.8%, and a similar pace was maintained in January-September 2024, up 8.6%.”

Putin urged much more along the line of making more industrial investment and development capital available, including encouraging companies’ listing on the stock market, and the expansion of the government’s program to encourage long-term saving.

There are some grave errors made by Putin in his presentation of the “facts,’’ presented to him by his Economics Ministry and the Bank of Russia (the Russian Central Bank).

First of all, these figures are presented as monetary values—in other words the monetary values of physical outputs and costs. To analyze an economy properly, one must look at things from a physical economic standpoint and measure output in physical economic terms, especially if we are looking to assess the relative health of an economy over time. For example, one could see a growth in the value of the production of automobiles, and assume that there was an increase in the physical numbers of autos produced, only to discover that a portion or even most of that measured increase was due to increase in the relative value or sales price of the product, which in turn is influenced by inflation.

But the most significant fallacy of composition error introduced by statistical representations of production is that statistical representations assign all values equally, with no reference to their effect on the economy as a whole. Putting aside that there is also an error introduced by monetary valuations, not all production has a positive effect on the economy, when measured in physical economic terms, including, most importantly, on the living standard and productivity of the labor force.

For example, from a physical economic standpoint, all military and military related production has a negative impact on the economy, representing a dead weight that must be deducted from any calculation of relative value of net social profit. So, too, is all production of what is required to keep an army in field, including what is done to sustain the families of those involved in the military, and military-related activities.

And here is where Putin’s statements about the strength and recovery of the Russian economy must face a reality check. Nowhere does he discuss the enormous expenditure of labor power, production, and transportation resources the Russian economy is bearing for current military production. When Russia invaded Ukraine, called the Special Military Operation, in February 2022, at that time both Russian and Western economists estimated the monetary cost, not to mention the social cost, to Russia would be between $500-$750 million per day. At present those costs are estimated to be between $1.2 and $1.5 billion. Per day!

In addition, to counter Western threats below the nuclear threshold, Russia has spent tens of billions in perfecting new weapons systems. Regardless of the impressive technology, that cost, both in labor and material, is still 100% pure waste that must be subtracted from profits made in other sectors of the economy. Putin has announced in other locations that the impressive Oreshnik hypersonic IRBM will be slated for mass production; whatever those costs will be, from a physical economic standpoint, it is pure waste.

The war in Ukraine and other military costs forced on Russia by aggressive Western policies, will have to be paid for. This is usually done through the issuance of bonds, as a form of borrowing to extend the payout over time. But Russia has been put on a super-high-interest rate regime by the Bank of Russia, which will make such borrowing enormously more costly, and will pull credit from other sectors of the economy, weakening the overall economy.

“While the Russians may have found ways to deal with the [U.S. and European] sanctions, or at least to mitigate them,” said a source, “they have not come up with a plan to pay for the war, which costs continue to mount. And, as some Russians, including the world’s leading physical economist and advisor to Putin, Sergey Glazyev, have said, the Bank of Russia and its high-interest rate regime is making matters worse. It is the military spending that is fueling the inflation, at the same time it puts pressure on the average Russian citizen, lowering their living standard. Putin can take some solace in that military spending by NATO and the West has put their economies on a road to disaster, and collapse. An end to the war at the earliest date, thus bringing an end to the sacrificing of so many lives and so much of the physical economy squandered on it by all sides, is in everyone’s interest.”