'Big Problems': Financial Times Reveals Information That Kremlin Hides From Russians

Russia's sympathisers have little reason to rejoice.

Two years ago, the West stunned the world by imposing unprecedented economic sanctions on Russia. However, the Russian economy did not collapse, which gave the Russian authorities and Putin an excuse to claim that Russia is resilient. In reality, however, the situation looks much worse for the Kremlin, writes The Financial Times.

"So is Putin right? Have the sanctions failed? And are there lessons for us in Russian economic management? The answers are no, no and quite possibly," the publication writes.

"Firstly, consider the fact that high GDP growth rates do not indicate something that they would do in other countries. The GDP (the sum total of all paid activities in an economy) depends on how much people want to buy. After the outbreak of the full-scale military conflict, Moscow arranged a "shopping spree" for soldiers, imported weapons and increased production of its own armaments. According to the Bank of Finland's Institute for Developing Economies (Bofit), most of Russia's industrial growth has come from war-related sectors. The rest of industry is largely stagnant," the experts say.

This does not mean that the GDP growth is not "real". The activity has obviously increased, as can be seen from other indicators, such as the falling unemployment rate. But the aggregate figure reflects the changed structure of economic activity. And even so, by Russia's own calculations, the GDP has barely caught up to its level before February 2022.

Big economic problems - from bursting central heating pipes to egg shortages - are spreading alongside the recovery in GDP growth. The utilities and housing infrastructure are deteriorating, fuelled by sanctions-related shortages of spare parts and machinery. The war economy - yes. The broad sustainability - not really.

It is a mistake to conclude from Russia's GDP growth that sanctions have failed.

The reallocation of resources in favour of military production masks the poor performance of the conventional economy. The real indicator is how bad the Russian economy would have performed in its previous configuration. The drop in GDP from sanctions would have been much greater. Moreover, the restrictions were not comprehensive - for almost a year after February 2022, Moscow was selling oil and gas without sanctions at prices it itself had jacked up.

Nevertheless, Russia is seizing an opportunity that liberal market democracies ignore - if you ignore the orthodoxy of economic policy, you can mobilise resources to achieve political goals and squeeze more real activity out of the economy at the same time.

Russia has abandoned many accepted economic principles as well.

Controlling capital flows and heavy-handed intervention in corporate decisions prevented the collapse of the currency and financial systems. Massive mobilisation of labour and resources was achieved through a combination of planning, deficit spending and reduced consumption.

Moscow's experience shows the following: the war economy cannibalises its own economic future. Non-military infrastructure suffers because investment is diverted. The Bank of Finland's Institute for Developing Economies notes that Russia is spending less on research than it did a decade ago, but Western countries could mobilise their resources to do just the opposite.

The truth is, those who sympathise with Russia have little reason to rejoice.

And the rest of us should (while tightening the sanction screws) recognise Moscow's ability, so far, to achieve politically oriented economic goals.