War with Ukraine set to cost 12% drop in Russian GDP

Worst figure since 1994. However, Putin keeps repeating that the country will resist Western sanctions. Underground deals  to circumvent US and allied restrictions. Return to Soviet planning would be the real defeat of the "special military operation."

Moscow (AsiaNews) - Russia's Ministry of Finance has released forecasts of economic developments, in which 2022 GDP is expected to shrink by 12 percent, the worst figure since 1994. Already in April, the effects of lost oil exports, down by 133 billion rubles, began to be felt.

Despite these numbers, Russian leaders keep repeating that "Russia has managed to resist the pressure of Western sanctions" imposed for the invasion of Ukraine, in the words of Foreign Minister Sergei Lavrov, and "the situation is stabilizing." Central Bank President Elvira Nabiullina, who also spoke of "a not easy period of structural transformations," also believes the country will "be able to cope with the challenges of the future."

Many economists liken these "transformations" to the transitions between Gorbachev's perestroika and Yeltsyn's reforms, when the openings were realized very slowly, while the closure of the "war" economy could be immediate, by next year at the latest. Although official statements do not admit it, the only real prospect is that of economic isolation.

As Ilja Segal, a Russian-born economics professor at Stanford University, explains, "Today all countries exploit the effects of globalization, but Russia has done so in the past years far more than any other, exporting natural resources and importing almost everything else." Isolation will not lead to total exclusion from markets and the disappearance of Western technology, but it will be able to access them with great slowness and difficulty, and at great cost.

"Even in the completely sealed-off USSR there were 'gray' or 'black' schemes for importing goods and technologies," recalls another Russian economist, Oleg Itskhoki: "My father worked in a neurosurgical clinic, went abroad to buy laser components essential for vision correction and then put them together himself, and this is what they will do today in so many areas of production." Imports of "gray scheme" will come via Kazakhstan, Armenia, Georgia and other countries, but in very small measures, having to find ways around sanctions.

According to Chicago professor Konstantin Sonin, "not only the quantities will be lower, but also the quality levels: if we used to build 50 planes a year, now we will make 20. They will cost us more is they will be more obsolete; traveling on super jets will be much more expensive and definitely more dangerous." Russian manufacturers will try to adapt everything to the new conditions, trying where possible to replace Western technologies with those from China or elsewhere, not subject to the sanctions. This will not always be possible, and several companies will be forced to close; not all Western items will be able to find substitutes.

It is difficult to predict which sectors of the economy will suffer most from the isolation. Those directly affected by sanctions are visible today: tourist agencies, airlines, automobile factories. According to many experts, actually the most harmful effects will be the secondary and derivative ones, when Russians will stop buying many items and will be forced to reduce family budgets, deeming many things unnecessary, in the absence of means and opportunities. More than tourism and transportation, the service and financial sectors will be tested: people will go to restaurants much less, and there will be no big savings to put in the bank.

One obvious effect will be the growth of the state economy, reverting to the Soviet bureaucracy, which today is mainly engaged in the production of war materials, so there will remain the indelible mark of a "war economy" in which the government will try to control the markets, hoping that there will be no return to the planning of yesteryear: that would be the real defeat of the "special military operation."