International Monetary Fund announced its assistance in mitigating the impact of sanctions on Russia
Russia Surpasses Japan to Become Fourth Largest Economy in the World
In a significant shift in the global economic landscape, Russia has surpassed Japan to become the fourth largest economy in the world, according to a report by the International Monetary Fund (IMF) in 2024.
By the end of 2024, Russia's Gross Domestic Product (GDP) at purchasing power parity (PPP) reached 3.55%, positioning the country ahead of Japan. This growth was primarily driven by robust government and military spending, a strong defense-industrial complex, tight labor market conditions, rising real wages, and sustained domestic consumption.
A key factor in this growth was the massive government spending. By 2025, government expenditure reached 32% of the federal budget, with a significant portion directed toward military expenditure, which accounted for 8% of GDP and 40% of federal spending. This military spending was at the highest level since the Cold War and acted as a strong stimulus for economic activity, particularly in defense production.
The defense sector, including enterprises like Uralvagonzavod (Russia's largest tank manufacturer), experienced a 60% production increase from late 2022 to spring 2024, driven by war-related demand. This boosted industrial output and employment in related sectors.
Unemployment reached a historic low of about 2.3% in mid-2023, supported by a tight labor market partly due to conscription and labor moving to war-related activities. Real wages increased by 19% in 2024, including even higher wage growth in defense sectors, stimulating consumption and domestic demand.
Economic resilience amid sanctions also played a significant role in Russia's growth. Despite extensive Western sanctions aiming to isolate Russia financially and technologically, the economy showed considerable resilience in 2023-2024. This was partly due to strategic trade relations with countries like China and India, substitution of imports, and government fiscal measures supporting public services.
However, this growth is limited and faces substantial risks such as inflation (close to or above 10%), labor shortages, a shrinking labor force, ongoing geopolitical isolation, and medium-term projections suggest a decline in growth potential due to financial isolation with the IMF and OECD projecting slowdown or stagnation beyond 2025.
The IMF also notes that Russia's economy in the past year was determined by medium-term factors and desired policy. Large currency reserves and a floating exchange rate help cushion economic shocks in Russia, as reported by the IMF. In 2024, the ruble strengthened by 1.3% due to changes in trade structure.
The net international investment position (NIIP) in 2024 was 43.6% of GDP, 2.0 percentage points more than in 2023. This reflects the difference between a country's foreign assets and assets owned by other countries.
In conclusion, the growth in Russia's GDP at PPP in 2024 was primarily driven by robust government and military spending, a strong defense-industrial complex, tight labor market conditions with rising real wages, and sustained domestic consumption, all underpinned by resilience despite sanctions. However, the growth faces substantial risks, and medium-term projections suggest a decline in growth potential due to financial isolation.
The defense sector, buoyed by increased military spending, witnessed a 60% production surge from late 2022 to spring 2024, providing a significant boost to overall industrial growth and employment. This growth trajectory in the industry sector was funded, in large part, by government finance, with military expenditure accounting for 8% of GDP and 40% of federal spending in 2025.
