To justify the invasion of Ukraine, Vladimir Putin painted Russia as a hegemonic power reaffirming its legitimate claim to imperial greatness. Yet even before the invasion, Russia’s economic capabilities were barely capable of sustaining an empire.
Now with foreign sanctions presiding over a freefall Russian ruble, Russia’s economic situation has deteriorated further. If measured at today’s exchange rates, the Russian economy would be the 22nd largest in the world, with a Gross Domestic Product (GDP) not much bigger than the state of Ohio.
This is far from the past, when Russia was a real world power. According to data compiled by the late economic historian Angus Maddison, it was the fifth largest economy in the world in 1913, behind the United States, China, Germany and Great Britain. In 1957, when the USSR overtook the United States to launch the first satellite into space, the Soviet economy was the second largest in the world after that of the United States.
Putin’s quest for greatness
Putin was elected president following the chaos disintegration of the Soviet Union and the financial crisis of 1998 during which Russia defaulted on its debt and abandoned its fixed exchange rate.
At the time, the market value of Russia’s GDP had bottomed out at US$210 billion, making it the world’s 24th largest economy, behind Austria. (All contemporary GDP figures are from World Economic Outlook October 2021 published by the International Monetary Fund.)
Putin established a informal social contract with the Russian people on the basis of its ability to generate strong economic growth. Under the reign of Putin, and carried by a commodity price supercycle that would stretch into the 21st century, Russia’s GDP at market exchange rates increased tenfold, restoring Russia to global prominence and providing purchasing power to its middle class.
However, Russian researchers have argued that when Russia’s economy began to falter, after peaking in 2013, Putin sought new legitimacy to govern through foreign policy actions to restore Russia’s status as “great powerThese efforts were epitomized by the annexation of Crimea in 2014.
Russia’s invasion of Ukraine, in the context of Russian GDP at market rate losing a third of its value between 2013 and 2020, represents a doubling of Putin’s strategy to seek the legitimacy of “status of great power” rather than economic performance.
Yet the West’s relentless financial and economic sanctions have only accelerated Russia’s Economic Collapse.
Russian stocks traded on the UK market fell 98%, wiping out US$572 billion of wealth, while shares on Russian stock exchanges remain suspended.
The Russian currency fell to 155 rubles per dollar – a drop of more than 50% of 75 rubles per US dollar before the invasion. Otherwise for recent capital controls and the rise in commodity prices – caused by the sanctions themselves – which make up the majority of Russian exports, it would fall even further.
A country GDP at market rate is its GDP converted into a global currency like the US dollar. While there are other ways to measure GDP, when it comes to global trade and investment – and economic power – the market rate is what matters.
Russia’s GDP at market rate in 2021 was US$1.65 trillion, enough to make it the 11th largest economy in the world, behind South Korea. If we roughly convert Russia’s estimated 2021 GDP by March 7, 2022 exchange rates, rather than the average exchange rate used last year, and place it against the Table of GDP at market rate 2021the ranking changes and Russia slips to 22nd place, lying between Taiwan and Poland.
This drop is probably an underestimate. While a falling ruble lowers Russia’s exchange rate between its GDP and the US dollar, its weakening economy directly lowers its GDP in rubles. And Russia’s isolation will erode its economic competitivenessfurther widening the economic gap in the medium term.
Ukrainians confronted with the arrival of the Russian army have been made aware of Putin’s chimerical strategy. “You don’t have any problems to solve in your country? Are you all rich there, like in the Emirates?” an old person the man heckled the russian soldiers.
Putin’s next move
Robert F. Kennedy famously observed that the GDP did not take into account many elements that are important to us, such as health and education. The fall in Russian GDP at the market rate is not enough to describe the human tragedy playing out in both Ukraine and Russia.
But what these numbers make clear is that Putin’s claim to legitimacy through economic performance is all but shattered. With “great power status” intertwined with economic power, Putin’s devious source of legitimacy in stoking nationalist pride now also seems closed.
Putin may have led Russia by a “troubled times“, but he delivered it to someone else. It’s cold comfort for Ukrainians, and indeed for the rest of the world, who wonder what Putin’s next move will be.