(Bloomberg) — Top Russian officials used an appearance at President Vladimir Putin’s flagship business forum to paint a picture of an economy that’s adapting fast to unprecedented sanctions, while avoiding any mention of the war against Ukraine that triggered the penalties.
Technocrats including Bank of Russia Governor Elvira Nabiullina, Finance Minister Anton Siluanov and Economy Minister Maxim Reshetnikov addressed a depleted audience Thursday at this year’s St. Petersburg International Economic Forum, which drew global figures in politics and finance before the invasion of Ukraine.
“The structural transformation of the economy is happening faster than we expected,” Nabiullina said. “The worst predictions didn’t come true.”
During a more than an hour-long discussion on stage, the mood turned from ironic to jovial as speakers coalesced around a consensus that the economy is holding up so well that it even risks overheating. The central bank expects growth of as much as 2% this year, with output likely to reach pre-war levels by the end of 2024.
“Global markets turned out to be very flexible and the world economy — despite all the geopolitical pressure — turned out to be rational,” Reshetnikov said during the session. “They act primarily in the interests of their economies and, accordingly, choose what is beneficial to them.”
Turning the Page
Almost a year and a half into an invasion that’s forced Russia to rewire its economy and trade, the business agenda is shifting for the government after it had to ramp up spending and confront record labor shortages following the call-up of men to fight in Ukraine.
European and US business leaders are all but absent from the forum, replaced for the most part by lower-level officials from countries that have stayed generally neutral on the war.
The event in Putin’s hometown has become a measure of Russia’s isolation but also an occasion to flaunt the resilience of an economy that was widely predicted would fall apart under pressure from the sanctions imposed by the US and its allies.
That it didn’t is due largely to the “very flexible, nimble” Russian companies that helped the adjustment, according to Nabiullina, who warned the state shouldn’t take on too large a role in the economy. The central banker even called for a new round of privatization, a view backed by Kremlin economic aide Maxim Oreshkin who appeared alongside her.
The option — described by Oreshkin as “exiting the assets inefficiently used by the state for the benefit of the state” — appears at odds with government-orchestrated takeovers of companies and the recent seizure of utilities owned by Finland’s Fortum Oyj and Germany’s Uniper SE in retaliation for asset freezes by European countries.
Unease about growing state dominance in the economy was increasingly a concern for some of the officials who spoke in St. Petersburg. Nabiullina warned against “suppressing private initiative” and what she called “the extreme case” of returning to a planned economy.
For Siluanov, it’s the overstretched budget that’s a cause for alarm. Since the start of the invasion in February 2022, authorities dramatically raised expenditure on defense, which — together with the related category of national security — is now second only to the government’s social programs as a proportion of spending.
“We have a lot of outlays that have not been reviewed for a hundred years,” Siluanov said. “But there is nothing untouchable now, everything needs to be re-examined.”
Another drag on the economy is a dearth of workers, with hundreds of thousands fleeing Russia to avoid a partial draft in September or for fear of being enlisted to join the war. Oreshkin said “almost half” of those who left last fall had returned, with optimism among the population rising to record levels.
Siluanov reacted by offering what he suggested would be an even more important “key performance indicator,” or KPI.
“I’ve already said that there are more optimists because the pessimists have left,” Siluanov said. “KPI is getting pessimists to return.”
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