By Ben Aris in Berlin
Following Russia’s invasion of Ukraine just over two years ago, more than a million young Russians fled the country and a hope that those that stayed at home, appalled at the decision and cost, would rise up and throw President Vladimir Putin out of office.
Fast forward to today, and it appears that not only have the extreme sanctions failed to empty the Kremlin’s coffers and so stop the war, but they have created a boom in Russia that is lifting average wages and making Putin more popular than ever.
As bne IntelliNews reported, Russia’s poorest regions have been the biggest winners from the massive $140bn of war spending, which has gone some way to undoing Russia’s vast income inequality. Typically defence factories are located in small towns deep in the interior, but now the economy is on a full war footing those same factories are working three shifts a day 24/7 and the acute labour shortage has sent nominal wages up by 14% since the war started, while inflation fell from 11.9% in 2022 to 7.4% last year, which means average Russian real wages have been growing strongly for the first time in more than decade, according to the latest Central Bank of Russia (CBR) macroeconomic survey.
The war in Ukraine has put money in working class pockets and the amount has increased noticeably in the last year. People are going shopping, fuelling a feel-good consumption boom. And that is lifting support for Putin. Four out of five Russians now say they trust Putin and the last Levada Centre poll shows that Putin's popularity has risen since the war started and currently stands at 86%, with only 11% disapproving.
“While the full-scale invasion of Ukraine was a major shock for the middle class, it has also channelled wealth to many people who were previously struggling to make ends meet,” political analyst Ekaterina Kurbangaleeva argued in a recent paper for Carnegie Endowment for International Peace.
Real incomes rose 5.8% in 2023 and at the same rate in the first quarter of 2024, according to RosStat. On top of that, figures from the Federal Tax Service show that the Russian state’s income tax revenues in 2023 were 40% higher than in 2021 (the lion’s share of this increase took place in 2023), Kurbangaleeva reports. And none of the big net contributors to the budget have seen their income increase by much, while all the top spot big winners are occupied by regions that before the war were traditionally net recipients from the federal budget, such as republic of Chuvashia (a rise of 56% over two years), Bryansk region (54%), Kostroma region (52%), Kurgan region (50%), Smolensk region (49%), and Zabaikalsky region (47%). There were only three regions where income tax contribution growth was under 20%.
The political consequences of this levelling of incomes in Russia are huge. Previously disenfranchised and missing out on Russia’s post-Soviet progress, the poor residents of the backward regions are finally participating in Russia’s modernisation and catch up with the rest of Europe’s higher living standards. And they credit Putin with the transformation.
“Given the growth in income tax payments (and that RosStat assesses that 59% of incomes in 2023 derived from wages), it can be said with confidence that real incomes have risen faster than inflation since the full-scale invasion,” says Kurbangaleeva.
Russians are both spending more and saving more from the war income windfall. According to the central bank, the amount of held in Russian bank accounts climbed 19.7% to RUB7.4 trillion in 2023 (nearly three times what it was in 2022), buoyed by high interest rates.
When it comes to consumption, the picture is a lot more varied. Popular European holidays are off the agenda after airlinks were severed shortly after the war broke out, and the flood of imported Chinese cars that replaced the European models is not everyone’s cup of tea either, says Kurbangaleeva.
“However, there are two spending trends that suggest at least some consumers have money to burn. Firstly, demand continues to grow for mortgages (the total value of mortgages held in Russia grew 34.5% in 2023). This growth has mostly been driven by state-subsidised mortgage programmes. And demand showed no sign of slacking in the first four months of 2024,” says Kurbangaleeva. Many Russians have enough cash to put down a 30% deposit on a property and are happy to take on twenty-year mortgages.
“The second trend is the booming gambling market. The income of legal bookmakers rose 40% in 2023, and active gamblers (those who bet at least once a week) numbered some 6.6mn people. In total, more than 15mn people gambled (about one in seven Russians over the age of 18) over the course of the year. At the same time, inflation means the size of the average bet is growing. Current trends have even led to calls to raise the legal limit on a single bet from RUB600,000 ($7,220) to RUB1.4mn ($16,840),” says Kurbangaleeva.
Previously it was jobs like IT professionals, bankers and lawyers that commanded the best salaries, but in a war economy it is working class blue-collar jobs like milling machine operator, machinist, welder, weaver and garment worker that are in demand.
Kurbangaleeva gives the example of a long-distance truck drivers who can now get an average of RUB180,000 ($2,030) a month (up 38% y/y), while couriers can earn up to RUB200,000 a month. “For comparison, President Vladimir Putin recently signed a decree raising the monthly payment to members of the Russian Academy of Sciences – the country’s leading academics and researchers – to RUB200,000 from next year,” says Kurbangaleeva.
