Sanctions are effective
An interview with Sergei Guriev
Sergei Guriev has contributed a chapter to The Eurasia Outlook 2022, an annual publication on Russia and its neighboring countries edited by Anne de Tinguy. The current issue (Etude du CERI n° 266-267) is entirely devoted to the consequences of Russia’s invasion of the Ukraine on the post-Soviet space.
In this interview, Sergei Guriev reflects upon the economic dimension of the conflict, more specifically the economic situation in Russia, the oil embargo, the costs of the war and the impact of economic sanctions.
A roundtable with several co-authors of The Eurasia Outlook will take place at Sciences Po on February 14th.
"At the beginning of the war, there was an expectation, shared among analysts in the West and Russian official forecasters, that Russian GDP would go down by 8 to 10%. This prediction was based on the fact that the West introduced a series of unprecedented sanctions, including sanctions on the Russian Central Bank, which were expected to lead to macroeconomic instability. Nobody anticipated that the Central Bank would be able to stabilise the macroeconomic situation or that the depression would then intensify so much that Russians would not protest their inability to exchange rubles for dollars, to take dollars out of the country.
In many ways, the expectations formed in March and April were too high; there was a smaller decline in GDP and more successful response from the Central Bank than projected. However, the fall of 3% that was observed in 2022 is not insignificant. For a start, this fall is not yet finished; all the analysts, including those in the Russian government, expect a continuation of the decline in GDP over the next year of another 2 or 3%. Also, the pre-war forecast was for 3% growth, so a fall of 3% is already a 6% difference. Moreover, given the high oil and gas prices during 2022, Russian growth without the war would have been much higher than 3% so the gap between what could have happened and the fall of 3% is even bigger than 6%. Another factor that needs to be taken into account is that, during wartime, GDP is not a good indicator of economic activity. During war, governments produce military equipment and munitions, including artillery shells, and this counts as an increase in GDP. If you move from producing artillery shells for 8 hours per day to 24 hours per day, that means you increase GDP. The contribution of production of weapons and munitions is equal to the government’s spending on them. However, while increasing weapons and munitions production increases GDP, in this case, the more munitions are produced, the more Ukrainians are killed and the more Ukrainian infrastructure is destroyed. This in fact decreases the quality of life for Russians and the future of the Russian economy because Russians will have to pay for this destruction and reparations will eventually have to come out of the pockets of the Russian government or Russian citizens. So in this sense, GDP statistics overestimate Russia’s economic performance."
