Business and production: Putin announced full economic recovery in Russia
The Russian economy has fully recovered after a difficult period and has already shown structural changes: GDP grew by 4.1% in the first 10 months of 2024, and unemployment reached a record low of 2.3%. Vladimir Putin said this on December 4 during the plenary session of the VTB investment forum "Russia Calling!". Experts attribute this to the reorientation towards domestic production after the withdrawal of Western companies. Despite the fact that a number of countries have shown themselves as unreliable partners, Russia will not prevent their business from returning to our market, but they should not count on special conditions, Putin emphasized. Now among the main goals of the Russian Federation are the development of partnership with friendly countries and the fight against inflation, which, according to the president's estimates, "is at a fairly high level."
Import substitution and relations with the West
On December 4, hundreds of representatives of government agencies, heads of Russian and international companies and investors came to the World Trade Center in Moscow, where the XV VTB Investment Forum "Russia Calling!" kicked off. The main theme this year was "The Future of Capital and Future Capital". Traditionally, over the course of two days, the forum will discuss key macroeconomic trends, strengthening the country's financial sovereignty and the search for new partnership opportunities.
Hundreds of foreign guests - from China, India, Iran and African countries - have also come to Moscow. Much of the head of state's speech was addressed to businesses from friendly states with which Russia will continue to build up its partnership. Thus, Putin expects the signing of a new fundamental treaty with Iran during the upcoming visit of the republic's President Massoud Pezeshkian to Russia, as well as the creation of a special fund with African countries for the development of cooperation.
Russian President Vladimir Putin at a plenary session of the VTB Investment Forum "Russia Calling!"
Representatives of the states of the collective West, who were also at the session, were concerned about the prospects for restoring economic ties with Moscow. The first question Vladimir Putin was asked by a businessman from Germany, who was interested in the possibility of returning companies that had left Russia after the start of the EIA. A number of countries have indeed shown themselves as unreliable partners in 2022, destroying trade relations, production and logistics chains with Russia, the president said.
- We often hear in the political, military and economic spheres that these countries have set a task to inflict a strategic defeat on Russia, including in the economic and technological areas, to radically weaken our country's industry, finance and services, to create an insurmountable deficit of goods in our market, to destabilize the labor market, to reduce the standard of living of our citizens. It is obvious that these plans have failed, have been defeated," Putin said.
Serviceman of the Armed Forces of the Russian Federation
The head of state emphasized that the Russian authorities did not squeeze Western business out of the country. Moreover, the majority of companies from the U.S. and Europe remained to work in the Russian market: about half of them - in the former mode, some of them transferred management to controlled organizations, but one quarter really left, he noted. The president promised that Russia will not prevent the return of Western companies, but they cannot expect special conditions. It will be difficult for the departed corporations to return to their former places.
- Over the previous two years, many niches vacated by the departure of our European partners have been and are being actively occupied by companies from other countries. And the so-called import substitution by Russian brands, the number of which is increasing many times over, is proceeding at a very rapid pace, which, frankly speaking, we ourselves did not expect," said the head of state.
Nevertheless, he believes that relations between Russia and the West will inevitably normalize, as both sides are interested in this in one way or another.
Low unemployment and success in digitalization
After such a difficult period, the Russian economy has fully recovered: technological, production and logistics potential is developing, and ties with promising partners are being strengthened, the president said. According to him, the industry today "ensures qualitative structural changes," which can be called the main result of work in the economic sphere over the past two or three years.
Experts believe that the structural reorganization of the Russian economy is reflected mainly in the development of production within the country. For example, today the volume of output in the processing industries and IT-industry is actively growing due to the implementation of import substitution programs, says independent expert Andrei Barkhota. Production processes are changing, and AI is being introduced in certain areas, emphasizes Svetlana Frumina, Head of the Department of Global Financial Markets and Fintech at Plekhanov Russian Economic University.
- Before 2014, the Russian economic model could be briefly described as "oil and gas in exchange for machinery and consumer goods", i.e. the country's economy was actually a raw materials appendage of the West. Today, Russia's economy is more isolated, but this has its advantages, such as the fact that even if it redirects hydrocarbon export flows from the West to the East, Russia does not become a raw materials appendage of either India or China, but develops its own manufacturing industry, which this year, as well as in 2023, will be the flagship of industrial production growth," said Natalia Milchakova, Lead Analyst at Freedom Finance Global.
The growth of the economy is also positively reflected in the budget system: between January and October of this year, the surplus of the country's consolidated budget and extra-budgetary funds amounted to about 2.5 trillion rubles, while Russia's GDP grew by 4.1% over this period, said Vladimir Putin. The growth is mainly concentrated in the manufacturing industries - for 10 months this industry added 8.1%.
- What is happening now is logical and natural, so should we be surprised that today it is the production of machinery and equipment, finished metal products, automobiles, as well as - and this is primarily - computers, electronic and optical products that is growing at a faster pace. In other words, the West has forced Russia to develop advanced industries - and it could not have expected that this would happen at such a pace," says Tatiana Belyanchikova, Associate Professor of the Department of Global Financial Markets and Fintech at Plekhanov Russian Economic University.
Against this background, Russia has a record low unemployment rate compared to many Western countries - only 2.3%, while in many European countries it is 7% and higher, Putin said.
- Youth unemployment is a problem in many countries around the world. We also have such a problem or, more precisely, already had one. Here the unemployment rate is below 9%, although at certain times and even recently it was over 20-25% in some regions of the country," the head of state added.
In addition, the level of digitalization of the financial sector in Russia today exceeds the global level. Thus, more than 80% of payments for goods and services in Russia are made in cashless form, the President said. The Bank of Russia is gradually introducing the digital ruble. Putin announced that settlements with the help of this form of money will begin to be used in the system of the federal budget of Russia from next year, and from July 1, 2025 such an opportunity should be nationwide.
On the inflow of investment and assistance to business
Investments in fixed capital of Russian businesses have increased for the third year in a row, despite emerging problems, the president said. In 2022, investment growth amounted to 6.7%, in 2023 - 9.8%, and in the first nine months of 2024 - already plus 8.6%. In real terms, by 2030 they should rise by 60% relative to 2020. According to Vladimir Putin, Russia's BRICS partners have already agreed to the idea of developing an investment platform for the association. Russia's friendly countries have significantly increased investment in the Russian economy, which is driven solely by economic interests.
According to Putin, Russia has practically adapted to the outflow of Western capital from the country precisely due to the growth of investment in fixed capital and the work of domestic manufacturers. Against this background, he instructed to strengthen the work to protect the rights of investors and ensure the necessary information transparency of companies. It is noteworthy that the volume of business lending in Russia is growing despite the key rate of 21%, the President noted. Despite the inflated rates, expectations of investment activity in Russia today are moderate, said Svetlana Frumina. According to Natalia Milchakova, the investment climate in Russia is generally favorable for many industries, even despite the high key rate, largely due to support programs.
On inflation and the key rate
The President devoted a significant part of his speech to the need to curb inflation in Russia. According to him, today this requires coordinated actions of the Central Bank and the government, as it is now "at a fairly high level" - 8.8% in annual terms. Head of the Bank of Russia Elvira Nabiullina, speaking at the session before the plenary meeting, emphasized that inflation in Russia has not yet begun to slow down - the "braking path" to the 4% target will take the whole of next year and even partially 2026. Price growth in October amounted to 8.5%.
- The key rate is a powerful tool. Under the other factors, most of which were very pro-inflationary this year - from the state of the labor market to sanctions, in these conditions, the rate was used to prevent entry into an inflationary spiral," she reminded.
Recall that the response of Russian banks to the decision of the Central Bank to raise the key rate was a record increase in deposit yields. In this, according to the head of state, there are pluses and minuses. On the one hand, deposit rates have increased. On the other hand, not all Russians have deposits in banks.
- The least well-off segments of the population are under pressure due to the fact that prices are rising, but without deposits in banks, they do not receive additional income, and there are probably still many of them compared to those who have accounts," the President explained.
The main response to the inflationary challenge today, the President called the growth of supply of goods and services in the market. Vladimir Putin also urged regulators to use tools to fight inflation "wisely" and avoid excesses, including the risks of increasing the income gap of citizens and reducing the revenue base of Russian regions. The central bank, meanwhile, admits the possibility of a rate hike, but it is not predetermined, Nabiullina said. Now the key rate is 21% per annum - at the last meeting in October the regulator raised it by 2 p.p. at once. The next meeting on the rate will be held on December 20.
Nikolai Zhuravlev, Deputy Chairman of the Council of Federation, commenting to Izvestia on the sidelines of the forum on the Central Bank's speech, noted that the regulator correctly cools the money supply with the help of the key rate. At the same time, it is worth considering other tools - for example, to introduce quantitative restrictions on the issuance of loans. The Bank of Russia is now partially using them for consumer loans, but the measure should be extended to mortgages and corporate lending.
Tatyana Belyanchikova also believes that in order to increase the investment attractiveness of Russian enterprises in the real sector, we should talk not about lowering the key rate, but about ensuring a more transparent and relatively stable regulatory framework and introducing preferential taxation regimes for investments in key industries.
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