The legend of the weak Russian economy
At the level of Germany
The Russian economy is far stronger than Western propaganda would like to believe. It is said that Russia's economy is at the level of Italy, but Russia will soon overtake the German economy.
From
25. April 2023 06:00 am
Western media like to claim that Russia's economy is insignificant and Russia has about the economic power of Italy. However, I already asked the question in an article in 2019 whether Russia will soon overtake Germany as the fifth largest economy. How does that fit together?
In order to understand this, we have to look at how the economic power of states is measured.
How the GDP is measured
The difficulty in calculating the gross domestic product (GDP) is that it can be measured according to very different methods, ironically speaking according to the motto "Believe only the statistics that you have falsified yourself". The question is always what you actually want to measure or check. Therefore, we have to look at a little dry theory.
First, there is the nominal and the real GDP. Nominal GDP is about the value of all goods and services in market prices. This means that rising (market) prices, i.e. inflation, increase GDP. Thus, even with declining production, nominal GDP can increase if only inflation is high enough.
To rule out this effect, there is real GDP. Inflation is excluded by setting base prices, so you get a clear insight into the development of production and services.
But now, too, the difficulty is obvious here if you want to compare different countries with different currencies. Finally, the countries set different base prices and also in different currencies, whose exchange rates change over the course of the calculation period.
To compensate for this effect, there is the measurement of GDP by purchasing power parity (PPP or English PPP). The point is that the same product can be more expensive or cheaper in different countries and that the same applies to wages. In Switzerland, wages are higher than in Germany, but anyone who has been there can see that everything is much more expensive there. The Swiss only have an advantage of their higher wages if they go abroad for shopping or on holiday, in everyday life at home the higher prices largely cancel out the higher wages.
GDP can therefore be measured in very different ways and very different results can also come out. Right or wrong is not a method. For example, if you want to measure the development in a country over the years, you are well served with the real GDP.
However, if you want to compare different countries, GDP according to PPP is the method of choice. Because just because a cup of coffee in Switzerland costs twice as much as in Germany, it is still the same cup of coffee. So if you want to compare the GDP, i.e. the sum of the goods and services produced (simplified, the number of cups of coffee sold), in different countries, and not the price differences, you have to take the GDP in PPPs in hand.
Where does the Russian economy stand?
Nominal GDP is, as seen, a completely unsuitable indicator to compare the economic power of countries. Nevertheless, Western media like to use the data according to nominal GDP in their reports, because the states of the West look best at this measurement method.
According to IMF estimates, Russia is only in eleventh place in the world with $2,62,649 according to nominal GDP 2023, while Italy is in eighth place with $2,169,745. Accordingly, the statement that Russia does not even have the economic power of Italy is true, but only according to the calculation according to the unsuitable nominal GDP.
It is different if we take GDP according to PPP as a basis, which is actually suitable for comparing the economic power of countries. The Western media conceal these figures because they do not fit into the desired picture, because also according to IMF estimates, Russia is sixth in the world according to GDP after PPP 2023 with 4,988,829 dollars and is Germany, which is in fifth place according to GDP after PPP with 5,545,656 dollars, thus close on the heels. According to the data of the World Bank, Russia has almost caught up with Germany.
The effect of the sanctions
We are currently experiencing a sensation from an economic policy point of view. For the first time in over 30 years, the Russian inflation rate is below that of Germany. Moreover, the German inflation rate is 7.4 percent more than twice as high as the Russian one, which is currently at 3.5 percent.
After the shock of the tough Russia sanctions, the ruble collapsed in the short term in March 2022 and the Russian inflation rate exploded to just under 17 percent, but when it became clear that the sanctions had little effect, the ruble quickly rose again and was at times the strongest currency in the world in 2022. As a result, the inflation rate in Russia has also fallen again and now, after the price shock of 2022 a year ago and thus fell from the statistics, the Russian inflation rate is lower than ever before in the last 35 years.
The prospects
Let's take the IMF's forecasts again. According to the IMF, Russia's economy is expected to grow by 0.7 percent in 2023 and 1.3 percent in 2024. How does this fit with the statements of the Western politicians who promised in March 2022 that the Russian economy would collapse under the Western sanctions? Or to the statements of Western "experts" who now declare that the sanctions would just weaken Russia in the long term? In any case, the IMF figures speak a different language.
While the IMF has had to raise its forecasts for Russia for a year with every new estimate, because the Russian economy is doing better than expected, it is exactly the other way around with the Western states. For Germany, the IMF has to lower its forecasts every time, currently the IMF sees a decline in economic output of 0.1 percent for Germany in 2023. For 2024, the IMF then forecasts growth of 1.1 percent again, at least so far.
Although the Russia sanctions hardly affect Russia, but have a massive impact on the states of the West, European politicians have no better idea than to demand further sanctions. I have a simple question: Do European politicians want to consciously destroy European economies, or are they actually so ignorant in economic matters that they do not know what they are doing?
No matter what answer corresponds to the truth, the damage that is being done to European states and the prosperity of the people in Europe by their governments will be permanent, because the increased energy prices in Europe after the end of cheap Russian gas will lead to a migration of many industries. And you don't have to have studied economics to understand that this means unemployment and impoverishment.
So we can make bets on when Russia will overtake Germany economically.