Staunton, July 5 – Vladimir Putin regularly insists that declines in the size of Russia’s shadow economy reflect economic growth and the departure of workers from that sector; but in fact, Moscow experts say, what is driving down the size of the shadow sector in the Russian economy is not growth but recession and increasing labor shortages, both the result of the war.
Before Putin launched his expanded invasion of Ukraine in February 2022, the shadow economy constituted an estimated 20 to 35 percent of Russia’s GDP and employed some 14.5 million people, according to the estimates of experts. In the last year, it has lost some 1.2 million employees (theins.ru/ekonomika/262416).
Not surprisingly, Putin is presenting this as a victory; and indeed, a decline in the size of the shadow economy would be if it were driven by growth in the rest of the economy and the employment of more people there. But in the Russian case, analyst Andrey Smolyakov says, neither of those factors is in play.
There, the decline in the shadow economy reflects the decline in the economy overall and the shortage of workers caused by emigration and mobilization that means fewer workers are available for either part of the economy. That will have a negative impact on many workers who will see both their incomes fall and the availability of goods decline as well.
These conclusions, Smolyakov points out, are shared by experts not only in Moscow but in Europe, although they seldom get the media coverage that Putin’s declarations do.