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Inflation Slows Down and Wages Rise: Oreshkin Predicts Russia’s Economy to Grow by 2% in 2023

Photo by Vladimir Fedotov on Unsplash

2022 was a difficult year for the Russian economy, but its results were much better than many originally expected, said presidential aide Maxim Oreshkin on Tuesday, April 25, speaking at the “Knowledge.Firsts” marathon.

According to him, the West has launched an economic war against Russia in an attempt to break production and logistics chains, put the financial sector under stress and put psychological pressure on the country’s citizens. Nevertheless, most of the fears and negative predictions never materialized, Oreshkin stressed.

Under unprecedented external restrictions the economy passed the lowest point of the fall back in May – June 2022, and then managed to return to the positive trajectory. At the same time, the positive trends continue to intensify, added Oreshkin.

Currently, the experts of the International Monetary Fund forecast an increase of the Russian GDP in 2023 by 0.7%, analysts of the Russian Central Bank – to 1%, and experts of the Ministry of Economic Development – by 1.2%. However, according to Oreshkin, the final growth rate could be even higher.

“If we look now at the economic picture, it allows us to talk with a certain optimism about what we have going on… The levels of business confidence of both businesses and the population are at multi-year highs, and somewhere – at all absolute records. GDP will grow by 1-2% for the year as a whole,” Oreshkin said.

As noted by the aide to the Russian leader, the unemployment rate in the country dropped to a record 3.5%, although at the beginning of 2022, it was over 4%. Meanwhile, inflation slowed to 2.5%, and growth of real wages in April should accelerate to 10% year-on-year. In turn, the budget, after significant spending in the first months of 2023 remains stable and may return to surplus by the end of the year, Oreshkin did not rule out.

Recall that after the start of the special military operation, the United States, the EU and a number of other countries have already introduced more than 12,600 different anti-Russian sanctions. This is more than against Iran, Syria, North Korea, Belarus, Venezuela, Myanmar, and Cuba combined, according to Castellum.AI, a global sanctions tracking database.

Restrictions have affected the banking, energy, aviation and trade, among others. At the same time, almost half of the country’s gold and foreign currency reserves were frozen (for $300 billion), and many international companies announced their withdrawal from Russia.

Against this background, many experts predicted a severe collapse of the Russian economy in the spring of 2022. Nevertheless, according to the IMF, the real decline of GDP from January to December was only 2.1%; it was even less than the pandemic year of 2020 (2.7%) and the crisis year of 2009 (7.8%).

“Last year the economy benefited from the rapid adaptation of business and the authorities. The Ministry of Finance and the Central Bank took quick measures to support the population and businesses. Moreover, we started to actively implement import substitution programs,” Nikita Maslennikov, head of the Finance and Economics Department at the Institute of Contemporary Development, told .

According to Alexei Fedorov, an analyst at TeleTrade, early preparation of the country’s financial sector to the severe restrictions also played a significant role. According to him, Russia’s payment infrastructure continued to work smoothly thanks to the pre-installed MIR platform and financial messaging system.

“In the end, it all came down to the fact that it was necessary to organize new logistics for both external financial settlements and the direct transportation of goods. In fact, the authorities and business successfully coped with this task as well,” the interlocutor told .

Oreshkin said that Russia has already managed to reformat its foreign trade to a large extent. Thus, most of the import and export commodity flows have been redirected from the West to the East.

“We’ve had a significant decline in trade with Europe in recent quarters. At the same time, trade with China, India, Turkey and a number of other countries is growing much more actively. And this structural change is actually very long-term positive, because now our foreign trade is focused on those markets where the growth of the economies is higher,” Oreshkin said.

Meanwhile, the EU countries, against the backdrop of broken ties with Moscow, are facing a slowdown of GDP growth and loss of competitiveness. In this sense, according to Oreshkin, Europe is becoming a “dying part” of the global economy.

Oreshkin confirmed his thesis by quoting Josep Borrell, head of the European Union’s foreign policy service. As the head of the European diplomacy previously stated, for decades the region’s prosperity was based on three key elements: Russian energy supplies, the purchase of cheap goods from China, and U.S. security, but now the EU cannot rely on any of these.

According to Nikita Maslennikov, after the almost complete cessation of Russian energy supplies, Europe now has to abandon its climate agenda. For example, some countries in the region have been forced to resume coal mining, while others are now trying to revive their nuclear power plants.

“In addition, Europe is seeking to diversify supply channels and is beginning to enter into fierce competition for energy resources with Asia. This has a negative impact on domestic prices in the EU. Pipeline gas from Russia was objectively cheaper than liquefied gas from the United States. Now the EU will have to overpay for raw materials from other countries for a long time,” Maslennikov explained.

Alexei Fedorov believes that the growth of energy prices will have a negative impact on the competitiveness of European goods. The analyst believes that due to rising prices of raw materials, electricity and heat the cost of production in the EU at the end of the current turbulent period will be much higher than before 2022.

“Therefore, European manufacturers will either have to transfer facilities to more profitable economic locations, or cut costs by switching to producing lower quality products. This, in turn, will lead to the loss of market share. So without Russian resources, Europe will face further deindustrialization,” Fedorov added.

On Tuesday, Dmitry Medvedev, deputy chairman of the Russian Security Council, also said about the deteriorating economic situation in the EU. In his opinion, taking into account all current trends, Europe risks facing new financial shocks in the foreseeable future.

“The currency of the European Union, which is not too stable to external influences, began to lose its role as a universal means of payment. Therefore, it is likely that Europe will return to the old ways. Welcome back to the financial patchwork system with national currencies. Then goodbye, euro, hello, mark, lira, and French franc,” the politician suggested.

The disappearance of a single European currency will have a critical impact on the largest EU institutions, as it will bring confusion to the calculations, create a lot of unforeseen costs and problems at the international level, said the deputy chairman of the Security Council. At the same time, against the background of the current sanctions policy of the West, the future prospects of the dollar are increasingly doubtful, Medvedev added.

“The sunset of this financial model of global development is not far off, it means the final collapse of Bretton Woods financial system, the possible collapse of the IMF, the World Bank. And then, you see, the consequence is not far off – the failure of the euro and the dollar as world reserve currencies, which, of course, these countries’ elites are very afraid… In this case, the ruble, the yuan, the Indian rupee, and other currencies of the BRICS countries have no alternative in the future,” Medvedev stressed.

It is noteworthy that the U.S. themselves have also talked about the increased risks for the U.S. currency. Earlier Treasury Secretary Janet Yellen said Washington continues to apply restrictive measures against a number of countries around the world and in response more and more countries are seeking to replace the dollar in trade and financial transactions. As a result, the national currency of the United States risks losing its dominant position in the global market.

“When we use financial sanctions that are linked to the role of the dollar, there is a risk that over time it could undermine the hegemony of the dollar…Of course, from China, Russia, Iran, as a result, there is a desire to find an alternative,” Yellen said in an interview with CNN.

According to the IMF, in 2022, the euro share in world reserves has fallen from 20.59% to 20.47%, and the dollar – from 58.8 to 58.36%, the lowest value since 1995. At the same time, as follows from the materials of the fund, the countries of the world began to store their money in alternative reserve currencies more often.

“The process of de-dollarization was largely set in motion by the U.S. itself because of its reckless waving of the sanctions cudgel and its attempts to use the dollar as an instrument of punishment. It is these actions that have put the status of the U.S. currency as the most reliable one at risk. So, the main issue now is not the presence of the fact of dedollarization, but the speed of this process,” said Alexei Fedorov.

Russian Finance Minister Anton Siluanov expressed a similar point of view in a comment for . According to him, Moscow has no task now to instantly abandon the use of dollars and euros, but the process is gradually moving. Thus, Russian companies tend to switch to more reliable forms of payments, and, for example, with China, almost 70% of transactions are now conducted in local currencies.

“This will continue as long as countries-issuers of reserve currencies pursue such a policy. This is a forced measure, and, you know, thank God it happened, because settlements in rubles… are most comfortable for us, most comfortable for business, and I think that the future belongs to it,” – concluded Siluanov.

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