Russia ousted European ‘industrial heart’ amid war and sanctions
The global economic landscape has been significantly reshaped by the full-scale war between Russia and Ukraine that erupted in February 2022. Its ripple effects have been felt far and wide, from the United States and South Korea, which have seen a spike in demand for high-end weaponry, to Central Asian and Arab Gulf oil producers, who have reaped the benefits of skyrocketing oil prices.
- In 2022, Russia produced 162 military helicopters more than in 2021
- Lower Rhine takes over multi-hundred ‘stealth’ fuselages production
- 400 next-generation tanks can be produced annually by Ukraine
In stark contrast to these beneficiaries, European nations, and Germany in particular, have weathered severe economic hardship. The loss of access to Russian markets for their exports and the abrupt halt of inexpensive Russian energy imports have dealt a crippling blow to their economies.
Deepening the economic pain for Europe was the disruption of the flow of vast sums of money from Russia, often illicitly funneled into European economies by Russian elites over the last three decades. As the European market wanes, China, Israel, and the United Arab Emirates are vying to expand their share in the Russian market for consumer goods.
Europe, heavily reliant on Russia’s inexpensive natural resources, top-tier talent, and substantial investment, often through corruption money, has seen Russia as its “second Africa” since the Soviet era. Russia’s role as a leading market for Europe’s finished products has been crucial to the economic well-being of resource-scarce European countries.
European economies, with Germany at the epicenter, have borne the brunt of the economic fallout. However, the impact on the Russian economy has been less severe than initially anticipated despite the stringent sanctions imposed by the Western world.
Russia’s relative economic resilience can be attributed to the absence of sanctions from non-Western nations, except for Japan, South Korea, and Singapore, and the failure of the United Nations to pass any sanctions. Boosted by expanding trade with non-Western economies like India, China, and the Arab Gulf States, Russia’s economy has shown remarkable buoyancy.
Russia displaced Germany from 5th place
The Russian economy has also benefited from import substitution and the proliferation of new firms and industries. This, coupled with the cessation of massive outflows of funds to the West and the increase in oil and gas export revenues, has provided a substantial boost to the Russian economy.
The seismic economic shifts following the outbreak of the Ukraine War were laid bare by the World Bank and International Monetary Fund in early August. The newly published data revealed that Russia, for the first time since the Soviet era, had climbed into the top five of the world’s economies.
With a purchasing power-adjusted Gross Domestic Product of $5.51 trillion, Russia leapfrogged Germany to claim the 5th spot behind China, the United States, India, and Japan. This metric, favored by the CIA, the World Bank, and other leading organizations, accurately gauges a country’s economic activity while buffering against the volatility of currency markets that can distort nominal GDP measurements.
Despite modest positions in high-tech and industry, Russia has managed to sidestep the swift contraction afflicting the German economy, which has been hit hard by the war in Ukraine due to its extensive ties with Russia.
Though it is highly unlikely that Russia will surpass Japan to claim the 4th spot, it is anticipated to retain its new position for the foreseeable future. The fate of Germany’s economy hangs in the balance. There is growing speculation that the rapidly expanding Indonesian economy may soon displace Germany from its 6th place ranking.
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