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The Russian Economy in the Fog of War | Video
Torbjörn Becker, Director of the Stockholm Institute of Transition Economics (SITE) at the Stockholm School of Economics, participated in a seminar to present the report, The Russian Economy in the Fog of War. Commissioned by the National Institute of Economic Research (NIER), this report provides a detailed analysis of Russia’s economic situation amid the ongoing war in Ukraine. It also examines the impact of international sanctions on Russia’s economy.
“We aim to understand the state of the Russian economy using all available analytical tools,” says Torbjörn Becker. “However, we must also adapt to grasp the full scope of the propaganda war surrounding the data provided by Russian institutions.”
Russia’s Pre-War Economy: An Oil-Dependent Powerhouse on a Fragile Foundation
Before Russia’s full-scale invasion of Ukraine, its economy relied heavily on oil and gas exports. These exports accounted for a significant portion of Russia’s GDP. Despite its global political influence, Russia’s economic power was modest, trailing other BRICS nations such as Brazil, India, and China. According to SITE researchers, this reliance on oil prices made Russia vulnerable to global market fluctuations. Moreover, the government strictly controlled economic narratives, shaping public perception through a centralized, politicized economic structure.
The State of the Russian Economy: Official Data vs. Reality
After the invasion, Russia stopped publishing some key economic indicators, only later resuming with limited transparency. Official statistics suggest moderate declines in GDP and rising inflation. However, SITE’s independent analysis suggests that the actual economic impact may be far more severe. Inflation, exchange rates, and GDP growth metrics are likely manipulated to create an optimistic narrative both domestically and internationally.
Economic Sanctions and Their Impact on Russia’s Economic Capabilities
Western sanctions target Russia’s energy exports and restrict essential technology imports. These exports and imports are critical for Russia’s economic survival. As a result, reduced oil and gas revenues have forced Russia to rely on less efficient trade alternatives. This shift further strains its economy. SITE notes that these sanctions contribute to a downward economic trajectory, limiting Russia’s fiscal resources and reducing its capacity to sustain military operations.
Medium- and Long-Term Economic Outlook: Structural Challenges and a Bleak Future
Looking forward, the SITE report warns of long-term challenges for Russia’s economic stability. Structural issues—like reduced foreign investment, a shrinking labor force, and declining productivity—severely affect the country’s growth prospects. Additionally, the exodus of educated youth and business leaders, paired with a growing dependence on military spending, leaves Russia in a precarious position. Declining oil prices, as forecasted, would likely worsen these pressures, weakening government budgets and increasing inflation.
The full report, The Russian Economy in the Fog of War, available on NIER’s website, paints a stark picture of the economic struggles Russia faces today and in the coming years. SITE researchers reveal a path forward for Russia that appears riddled with economic hardship, worsened by ongoing sanctions and an increasingly isolated position in global finance.
More About Torbjörn Becker
Torbjörn Becker has been the Director of the Stockholm Institute of Transition Economics (SITE) at the Stockholm School of Economics (SSE) in Sweden since 2006 and is a board member of several economics research institutes in Eastern Europe.
Read more policy briefs authored by Torbjörn Becker on the FREE Network website.
The Russian Economy in the Fog of War | New Report
A new report highlights the growing instability of the Russian economy as it grapples with the effects of war and sanctions. Official figures on inflation and GDP growth present an overly optimistic picture, according to the Stockholm Institute of Transition Economics (SITE). The report reveals that Russia’s fiscal resources are under severe strain, threatening its economic future.
Economic Instability in the Russian War Economy
Russia’s war in Ukraine has caused unprecedented challenges for its economy. The report shows that Russia’s heavy reliance on oil exports remains a double-edged sword. International oil prices continue to dictate economic performance, but sanctions and declining demand have strained this vital revenue stream. This has deepened the instability in the Russian war economy.
Sanctions have blocked Russia from Western markets, forcing it to use costly and inefficient trade routes through China and other “friendly” nations. As a result, costs have surged and profits have shrunk, further destabilizing the economy.
Key Research Findings
- Official statistics likely understate the real inflation rate and overestimate GDP growth.
- Russia’s financial reserves, vital for war spending, may be depleted within a year, raising economic risks.
- Fiscal policies are unsustainable, with rising public spending at odds with monetary tightening.
- Sanctions are undermining long-term economic growth, especially in the energy sector.
Sanctions and Long-term Risks for the Russian War Economy
The report explains how international sanctions are driving the Russian economy toward long-term decline. Sanctions are not only limiting financial resources but also cutting off access to key technology and raising trade costs. This erosion of Russia’s industrial base, coupled with heavy war spending, has reduced investment in critical infrastructure and innovation. The future of the Russian war economy looks bleak, with the risks continuing to grow as the conflict drags on.
Read the Full Report “The Russian Economy in the Fog of War”
For a comprehensive understanding of Russia’s economic challenges in the context of war, read the full report by the Stockholm Institute of Transition Economics (SITE). Access the complete report on the Institute’s website.
About SITE
SITE was set up as a research institute at the Stockholm School of Economics (SSE) in 1989 with the mandate of studying developments in the Soviet Union and Eastern Europe. Today, SITE is a leading research-based policy institute on these issues. SITE has also built a network of research institutes in the region (FREE Network) that includes the Kyiv School of Economics (KSE). KSE not only provides a premier economics education to future leaders in Ukraine but is also involved in the analysis of the Ukrainian, as well as the Russian, economy, including analysis of the role of sanctions in limiting Russia’s destructive capacity. KSE has been an important contributor of the data and analysis that underlies this report. For more information, visit SITE’s homepage.
To read more policy briefs published by SITE’s experts, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Belarus GDP Slows Due to Agricultural and Oil Processing Challenges
A new economic analysis reveals that Belarus’ GDP growth sharply slowed in August 2024, with agriculture and oil processing as major contributors. Published in September 2024, this report examines the complex factors influencing the country’s economy and explores the GDP slowdown of Belarus.
Belarus Economic Slowdown Driven by Agriculture and Oil Processing
Belarus’ economy showed strong growth early in 2024, but August experienced a contraction due to unpredictable weather and industrial bottlenecks. The country’s reliance on agriculture and oil refining made it particularly vulnerable, with harvests and oil production both facing disruptions. While GDP grew 4.9% from January to August, the slowdown in August highlights the economy’s fragility amid external pressures and regional instability.
Key Findings
- Belarus’ GDP grew 4.9% over the first eight months of 2024 but contracted by 3-4.5% in August.
- Agriculture dropped 15.5% in August after a 29.6% rise in July, significantly impacting growth.
- Oil refining and industrial output were hit by weather-related challenges, reducing production.
Economic Outlook and Necessary Reforms for Belarus
The report stresses that Belarus’ future economic stability depends on bolstering its agricultural output and resolving industrial weaknesses. The findings suggest that the economy is highly susceptible to external factors like weather patterns and geopolitical tensions. Future research should focus on diversifying the economy to ensure consistent growth and reduce reliance on volatile sectors.
Full Report on Belarus GDP slowdown for August 2024
Explore the full analysis and sector vulnerabilities on the BEROC website. This comprehensive report offers critical insights into Belarus’ economic trends, focusing on key sectors such as agriculture, energy, and industrial output, and aims to guide policy decisions.
Additional Resources
We invite you to view other reports produced by BEROC, all available on the BEROC’s website. Additionally, if you wish to explore more policy briefs published by the BEROC Institute, you can do so by visiting the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Russia’s Shadow Fleet: Sanctions Needed on Core Tankers, KSE Institute Urges
A new analysis by the KSE Institute reveals details about Russia’s shadow fleet and urges immediate action. The report, titled “The Core of Russia’s Shadow Fleet: Identifying Targets for Future Tanker Designations,” uncovers 86 tankers evading sanctions. These tankers allow Russia to continue oil exports despite the G7 price cap.
Key Insights into Russia’s Core Shadow Fleet
From January 2023 to June 2024, 307 shadow tankers in the Russia shadow fleet carried Russian crude oil. During the same period, 432 tankers from the fleet transported Russian oil products across various regions. Of these, 45 crude oil tankers and 41 oil product tankers are core parts of the fleet. However, only eight core vessels from the Russia shadow fleet have been sanctioned by the US, EU, or UK. As a result, many critical Russian tankers still operate undetected, evading current sanctions. Although 64 shadow fleet vessels were sanctioned since the fall of 2023, much of the fleet remains active.
UAE and Turkey Fuel Shadow Fleet Growth
The report highlights how UAE and Turkish companies are central to Russia’s shadow fleet operations. UAE-based Stream Ship Management Fzco manages 28 of the 45 core crude oil tankers. Turkish firms oversee a large share of the core oil product fleet. Frequent changes in vessel management after sanctions make enforcement more difficult, allowing operations to continue under new entities.
Strengthening Sanctions on Core Vessels
The KSE Institute urges governments to apply more pressure by targeting additional shadow fleet vessels. Sanctioning the remaining 45 crude oil and 41 oil product tankers from the core fleet would severely impact Russia’s ability to export oil. This would force reliance on mainstream tankers that are subject to the price cap, tightening existing sanctions.
Conclusion: Immediate Action Needed
Russia’s shadow fleet continues to grow, supported by entities in the UAE and Turkey. Current sanctions are weakening, and the KSE Institute calls for the urgent designation of the core vessels identified in its report. This would strengthen sanctions and reduce Russia’s capacity to fund its war in Ukraine.
Additional Resources
We invite you to view the full KSE Institute report, now available on the KSE Institute website. Additionally, if you wish to explore more policy briefs published by the KSE Institute, you can do so by visiting the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Belarus Economy: GDP Growth, Inflation, Labor Shortages | August 2024
Belarus’ economy saw significant GDP growth in Q2 2024, accelerating to 5.5% year-on-year, compared to 4.3% in the previous quarter. Economic overheating has increased amidst persistent labor shortages, with unemployment at a historic low of 3.0%. Investment growth, high consumer demand, and the strong performance of the Russian economy have driven this acceleration.
Key Highlights:
- Belarus GDP Growth: 5.5% in Q2 2024, up from 4.3% in Q1 2024.
- Labor Market Tightness: Unemployment is at a record low of 3.0%, creating wage pressures.
- Economic Overheating: Consumer demand remains overheated, with demand exceeding supply.
- External Trade Challenges: Trade balance deteriorates amid sanctions and falling export prices.
- Belarusian Ruble: Slight depreciation due to moderate pressures on the internal currency market.
Labor Shortages and Wage Increases in Belarus
The labor shortage in Belarus has driven businesses to increase wages by over 22% compared to 2021 levels. This wage inflation is a direct result of a tight labor market, with fewer unemployed individuals per vacancy. The wage growth is adjusted for inflation and continues to pose challenges for employers.
Consumer Confidence and Inflation Trends
The Consumer Confidence Index in Belarus rose to -1.4% in July 2024, marking the highest level since December 2021. Inflationary pressures remain a key concern, with annualized inflation reaching 6.1% in Q2 2024. Consumer prices are being held in check by price controls, particularly in the non-food sector, though price increases in services remain significant due to pro-inflationary factors.
Belarus Economic Forecast for 2024-2025: Slower Growth Expected
Looking forward, the economic outlook for Belarus in 2024-2025 suggests a slowdown in GDP growth. For the full year 2024, GDP is expected to grow by approximately 4%. However, in 2025, the pace of growth is forecasted to slow to between 0.5% and 1.5%, as higher interest rates temper credit expansion and demand.
Inflation in Belarus is projected to remain elevated, with consumer prices expected to rise between 5% and 7% in 2024. By 2025, inflation could accelerate further, potentially reaching 6% to 9%, influenced by rising prices in Russia and sanction pressures.
Economic Risks and Challenges Facing Belarus
Several risks could impact Belarus’ economic growth and inflation in the medium term:
- Sanctions and External Trade: Ongoing sanctions are disrupting trade financing and supply chains.
- Labor Shortages: Continued shortages in the labor market could restrict production capacity.
- Russian Economic Slowdown: A deceleration in Russia’s economic growth could dampen demand for Belarusian exports.
Despite these challenges, increased investments and more efficient economic policies could mitigate some of the risks, potentially driving stronger-than-expected growth.
Additional Resources
We invite you to view the full BEROC webinar, which is now accessible on the official BEROC YouTube channel. Moreover, for further details, please visit the BEROC website. Additionally, if you are seeking to explore more policy briefs published by BEROC, you may do so by visiting the Institute’s page on the FREE Network’s website.
Disclaimer: Neither BEROC, the FREE Network, nor their representatives can be held responsible for the use of the information contained in this press release. Despite thorough preparation, BEROC and its representatives do not guarantee or assume responsibility for the accuracy, completeness, or reliability of the information. BEROC is not liable for any losses or damages arising from the use of the provided information.
Unlocking Export Potential of Georgia: Strategic Insights for High-Growth Sectors and European Market Expansion
A new report by the ISET Policy Institute provides a comprehensive analysis of Georgia’s fastest-growing export sectors, revealing significant opportunities for small and medium-sized enterprises (SMEs) to increase their export potential to European markets. Supported by the European Union and the United Nations Development Programme (UNDP), the study identifies six key sectors in Georgia that demonstrate strong potential for export diversification and market expansion across Europe.
High-Growth Sectors in Georgia: Key Findings and Export Opportunities
This detailed ISET report blends both quantitative data and qualitative insights from industry stakeholders, highlighting the top six sectors:
- manufacture of beverages,
- transport,
- telecommunications,
- computer and information services, and
- manufacture of wearing apparel.
Each of these sectors is shown to have substantial export competitiveness, growing demand in European markets, and opportunities for sustainable growth despite existing challenges.
Beverage Manufacturing in Georgia: High Export Potential for Wine and Spirits
One of the highest-ranking sectors in Georgia is beverage manufacturing, particularly in the production and export of wine, mineral water, and spirits. Although Georgia’s beverage exports are growing rapidly, the report reveals untapped potential in the European Union market. By enhancing certification processes and building export capacity, Georgia’s beverage industry could significantly increase its presence in Europe, particularly in high-demand niche markets like organic wines and premium spirits.
Digital Economy Growth: Telecommunications, Computer, and Information Services
Georgia’s telecommunications, computer, and information services sector is another high-potential industry. With SMEs contributing 84% of turnover in computer services, the sector plays a vital role in Georgia’s digital economy. Demand for these services is growing across Europe, making this sector a key driver for future export growth. The report suggests targeting European digital markets and strengthening public-private partnerships to further enhance the sector’s international competitiveness.
Strategic Recommendations to Boost Georgia’s Export Competitiveness
The report provides actionable recommendations to further boost Georgia’s export performance. These include improving infrastructure quality, expanding access to financing for SMEs, and encouraging public-private collaboration. To stay competitive in European markets, Georgian SMEs are advised to focus on green technology adoption, niche market targeting, and meeting international quality standards through certification improvements.
Preparing Georgia for Sustainable Export Growth and European Market Integration
With significant export potential across multiple sectors, Georgia is poised to expand its presence in European markets. By investing in strategic policy frameworks and fostering SME growth, the country can accelerate its economic integration with Europe. Georgia’s small and medium-sized enterprises (SMEs) have a crucial role to play in driving sustainable economic growth and export diversification in the coming years.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development.
For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
Media (de)Polarization Index | July 2024
In July 2024, the Georgia Media Polarization Index saw a notable rise due to several key political events. For instance, the United States indefinitely postponed the “Worthy Partner 2024” military exercise. Additionally, President Salome Zurabishvili returned proposed Pension Law amendments to Parliament for further review. Moreover, she appointed a non-judge member to the Supreme Council of Justice, though the court later suspended this member. However, during periods of opposition party unification and Georgian athletes’ successes at the Olympics, the index experienced a decline.
Interactive Chart: Polarity Index Only – July
Media (de)Polarization Index – 2020-2024 (as of July 2024)
What is the Georgia Media Polarization Index?
The Georgia Media Polarization Index, created by the ISET Policy Institute, serves as a powerful tool for measuring the level of political bias and polarization across Georgia’s leading media outlets. This index examines the political dissimilarities in news coverage, offering a clear, data-driven analysis of media bias in Georgia.
How the Media Polarization Index Works
The Media Polarization Index utilizes a weighted average to assess political dissimilarities between various Georgian media outlets. Media sources with higher ratings exert greater influence on the overall results, providing a more comprehensive understanding of political content distribution. This method helps in identifying where each media outlet stands on the political spectrum, allowing users to visualize the extent of media bias.
Importance and Application of the Media Polarization Index
The Georgia Media Polarization Index is crucial for researchers, policymakers, and media watchdogs focused on monitoring media bias and polarization trends. It provides valuable insights into how Georgian media outlets shape political discourse and evolve over time. The findings from the index support efforts to promote balanced media coverage, inform policy decisions, and encourage dialogue on the media’s influence in Georgia’s political landscape.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development. For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
Disclaimer: The opinions expressed in policy briefs, news posts, and other publications are those of the authors and do not necessarily reflect the views of the FREE Network and its research institutes.
China’s Investment in Georgia’s Anaklia Deep Sea Port Project: Risks and Recommendations
A new policy brief from the ISET Policy Institute evaluates the risks associated with China’s investment in Georgia’s Anaklia Deep Sea Port Project. The report sheds light on China’s lending practices and its status as the largest bilateral creditor to low- and middle-income countries (LMICs). The brief identifies key financial and geopolitical risks that could arise from China’s involvement in the Anaklia port, and it offers strategic recommendations for Georgia to mitigate these potential threats.
China’s Lending Practices: Hidden Risks in Infrastructure Projects
China’s lending to LMICs is largely driven by the Belt and Road Initiative (BRI), focusing on infrastructure, transport, energy, and mining. This lending often includes confidentiality clauses, collateralized loans, and complex debt instruments, all of which pose risks. These practices can lead to hidden debt and financial vulnerabilities for borrowers, especially in large-scale projects like the Anaklia Deep Sea Port.
Anaklia Project’s Risks: Similarities to Other Chinese Infrastructure Investments
The policy brief highlights the similarities between the Anaklia project and other Chinese-backed infrastructure initiatives, such as Sri Lanka’s Hambantota Port. In Sri Lanka, unforeseen low returns led to debt restructuring and a debt-for-equity swap, sparking a global debate over sovereignty loss and debt-trap diplomacy. Georgia faces similar risks if the Anaklia Port Project does not generate the expected economic returns.
Uncertainty Over Cargo Volume: A Major Risk for Anaklia
The success of the Anaklia Deep Sea Port depends on achieving sufficient cargo volume to cover debt obligations. However, the geopolitical environment and uncertain contractual terms pose significant challenges. A failure to meet the projected cargo volume could severely undermine the project’s financial viability.
Policy Recommendations for Georgia: Mitigating China’s Investment Risks
The ISET Policy Institute recommends that Georgia prioritize transparency in all dealings related to the Anaklia project. The report emphasizes the need for robust risk management frameworks, thorough contractual reviews, and alignment with domestic laws and international standards. To further protect itself, Georgia should invest in capacity building in areas such as debt management and public investment oversight.
Despite the recent selection of a Belgian company for construction work at Anaklia, the report stresses that this does not alleviate the core financial and geopolitical risks linked to China’s involvement as an investor.
About ISET Policy Institute
ISET Policy Institute is the leading economic policy think tank in Georgia, specializing in research, training, and policy consultation in the South Caucasus region. The institute focuses on promoting good governance and fostering inclusive economic development.
For more information, visit ISET Policy Institute.
To read more policy briefs published by the ISET Policy Institute, visit the Institute’s page on the FREE Network’s website.
Stockholm Institute of Transition Economics Celebrates Its 35th Anniversary
June 15, 2024, marks a significant milestone for the Stockholm Institute of Transition Economics (SITE) as it celebrates its 35th anniversary. Over the past three and a half decades, SITE has established itself as a leading institution dedicated to economic research and the development of policies for transition economies.
From its beginnings as Östekonomiska Institutet in 1989, under the leadership of Anders Åslund, to the rebranding as SITE in 1996 with Erik Berglöf at the helm, SITE has continuously evolved as a research institution, securing a position among the world’s top think tanks in the field of economics, with a focus on Eastern Europe. In 2006, Torbjörn Becker brought his expertise from the International Monetary Fund (IMF) to lead SITE into a new era of research excellence, strengthening the focus on institution-building in the region.
Reflecting on this anniversary, Torbjörn Becker, Director of SITE, says:
“As we celebrate 35 years of economic research, policy analysis, and institution building, we are reminded of how important it is that we continue to work in this region. I am particularly proud that we are able to work with our fantastic partners in the FREE Network that make significant contributions to how their respective countries reform and develop.”
Building Institutions for Change
Since its foundation in 1989, SITE has been at the forefront of economic research and policy development in transition economies, playing a crucial role in establishing independent think tanks and academic institutions in Belarus, Georgia, Latvia, Poland, Russia, and Ukraine. These research institutes collectively established the Forum for Research on Eastern Europe and Emerging Economies (FREE Network); an umbrella organization that fosters collaboration and mutual learning among researchers, as well as administrative and institutional capacity building. As one of its key initiatives, the network publishes weekly policy briefs addressing contemporary economic policy challenges in Eastern Europe and emerging markets.
Bridging the Gap Between Research and Policy Making
SITE’s ambition for the years to come remains unchanged: to bridge the gap between leading academic research and current policy making through debate and communication. At our flagship events, such as SITE Development Day and the SITE Academic Conference, we are committed to debating topics where research can pave the way to solving global and regional challenges. In our weekly seminars and regular workshops, we remain dedicated to exchanging ideas with leading experts and policymakers. In the last decades, SITE’s research has been cited by top journals in economics, while its impact beyond academic journals has resulted in more than 30 million impressions across local and international news.
Key Milestones in SITE’s History
Using the Financial System to Enforce Export Controls
Soon after Russia’s full-scale invasion of Ukraine in mid-2022, Russian imports of battlefield goods subject to export controls have sharply risen, reaching levels close to those prior to Russia’s military intervention. This surge, which includes items from Western producers, highlights ongoing challenges in enforcing export controls and preventing the flow of critical components to Russia’s military industry. Imports are facilitated through channels in mainland China, Hong Kong, Turkey, and the United Arab Emirates. Additionally, countries like Armenia, Georgia, Kazakhstan, and the Kyrgyz Republic have also experienced significant increases in imports from EU and coalition countries, likely destined for Russia.
Benjamin Hilgenstock and Anna Vlasyuk from the KSE Institute, and Elina Ribakova and Guntram B. Wolff from Bruegel have written a working paper that explores how battlefield products banned under the existing sanctions regime continue to reach Russia. A significant portion of these goods originates from companies headquartered in sanctioned countries, and they are often routed through third countries with multiple intermediaries involved in the process. Despite efforts to restrict imports, foreign components in Russian weapons primarily come from Western companies, indicating that substitution is not readily achievable.
Learn more about the role of export controls, the challenges of export control implementation, and the financial system’s role in improving export controls in the latest working paper published by the experts from FREE Network sister institute – KSE Institute and Bruegel (see here).