Russia Made It To The Top-5 World Economies… Or Is It?

In 2022, Russia entered the top-5 largest economies in the world according to the World Bank. This achievement was attributed to the calculation methodology and favorable economic conditions, as stated by experts from the Profile magazine. However, in the current year, the global economic landscape has shifted significantly, and experts believe that replicating last year's accomplishments won't be possible, even with statistical maneuvering.

 

According to the recalculated ranking of the largest economies for 2022, Russia secured the fifth position in terms of GDP based on purchasing power parity ($5.51 trillion), surpassing Germany ($5.011 trillion) and four G7 countries: the United Kingdom ($3.479 trillion), France ($3.533 trillion), Italy ($3.18 trillion), and Canada ($2.106 trillion). It's worth noting that Russia's economy did not grow in 2022; rather, it contracted by 2.1%.

«Regrettably, there's no economic miracle here, only statistical wonders – or rather, the nuances of calculation and fortunate circumstances. Russia's fifth position among the world's leading economies can be attributed to two factors: 1) increased demand and the explosive surge in hydrocarbon prices during the first half of 2022; 2) the calculation of GDP based on purchasing power parity, which allows weaker economies to appear much stronger», writes Vladislav Grinkevich of the Profile magazine.

After February 24, 2022, Western countries imposed extensive sanctions against the Russian energy sector. As a result, global oil and gas prices experienced significant growth. Additionally, the physical volumes of energy resource sales surged, as Europeans sought to secure fuel in advance. This enabled Russia to earn more from exports than even before the onset of the intense phase of the Ukrainian conflict.

Significant decline in Russian imports due to the departure of Western companies from the market, coupled with other sanctions limiting exports from Russia, had a positive impact on Russia's trade balance. Furthermore, in response to Western sanctions, the Central Bank introduced restrictions on currency outflows abroad. All of this led to a strong strengthening of the ruble. According to the regulator's data, it appreciated by 18.4% last year: the average nominal exchange rate in 2022 was 67.46 rubles per $1 compared to 73.65 rubles per $1 in 2021.

The strengthening ruble, in turn, contributed to quite high GDP figures when recalculated in dollars. Alongside this, a record GDP per capita was recorded. According to IMF calculations, Russia's per capita GDP grew by 22.3% in 2022, reaching $15,443 thousand. Demographics also played a role in this, as highlighted by Grinkevich. According to Rosstat data, the country's population decreased by 0.37% or 555 thousand people last year. Additionally, between 600 thousand and 1.2 million people left the country. These changes also had a positive impact on per capita GDP.

A significant factor contributing to Russia's inclusion in the top 5 economies was the calculation methodology that takes into account GDP based on purchasing power parity (PPP). «Typically, when converting GDP from nominal values to PPP values, economies of developing countries inflate several times over, and their lag behind Europe and the USA seems less catastrophic», notes the expert. GDP based on PPP doesn't reflect the actual exchange rate but rather the so-called fair value of national currencies based on the cost of a specific basket of goods and services. It is assumed that under market economy conditions and competition, this basket should cost the same when converted from national currencies to dollars in different countries. However, this is often not the case, leading to disparities in cost.

When calculating nominal GDP figures, which represent the real size of the economy, Russia drops from the fifth place to the eighth or eleventh place (according to the IMF ranking).

Regardless of the calculation methodologies, experts believe that retaining the current position in the ranking of leading world economies won't be achievable for Russia in the current year. This is mainly due to the significantly changed market conditions on the global stage. Energy resources are becoming cheaper, while the ruble is depreciating and has already crossed the 100 rubles per dollar mark.

Source: Profile

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