Russian Economy Shows Solid Growth Amid Sanctions

MOSCOW (Reuters) – The Russian economy has shown solid growth in many sectors while unemployment remains at a record low, new data showed on Wednesday, prompting officials to hint at a brighter outlook for the year despite Western sanctions over the war in Ukraine.

Driven by military production, industrial output rose by 3.3% in July compared to a 2.7% increase the previous month, and by 4.8% since the start of the year, compared to 3.1% growth in the same period in 2023.

A preliminary estimate for gross domestic product (GDP) growth in the first half of the year stood at 4.6%, compared to 1.8% for the same period last year.

Officials attributed this growth to strong capital investment, including from the private sector, which in the second quarter rose by 8.3% year-on-year to 8.44 trillion roubles ($92 billion), following a 14.5% growth in the first quarter of the year.

“Given such high results in the first half of the year, we expect even higher figures for the entire year of 2024 than we had initially projected in the economic forecast published in April,” said Polina Kryuchkova, deputy economy minister.

The data suggested the economy was holding up despite Western economic sanctions and issues with international payments from Russia’s major trading partners, such as China, leading to a 9% fall in overall imports in the first half of the year.

However, they also pointed to overheating, which forced the central bank to hike its benchmark interest rate by 200 basis points to 18% in July, the highest level in over two years.

The central bank noted persistent labour shortages and wage growth, along with high inflation, as signs of an overheated economy and promised to maintain tight monetary policy and combat inflation until it subsides.

New statistics indicated that real wages rose by 6.2% year-on-year in June, following an 8.8% increase the previous month, while average nominal wages surged 15.3% year-on-year to 89,145 roubles a month.

Wage growth in Russia is being driven by payouts to contract soldiers fighting in Ukraine, which have set a new economic benchmark as workers in rapidly growing sectors facing acute labour shortages demand comparable pay from employers.

In the first half of the year, real wages grew by 9.4%, while nominal wages increased by 18.1% compared to the same period in 2023, according to new data. Unemployment remained historically low at 1.9 million people in July, or 2.4% of the workforce.