World Bank: Russia 4th largest economy by Purchasing Power Parity

By Rhod Mackenzie

Russia has become the fourth largest economy in the world in terms of purchasing power parity (PPP), a development that occurred at the end of 2021. However, it was not until 2024 that this was identified based on updated data from the World Bank. Why did it take four years to identify the place of the Russian economy on the world stage?
The World Bank has published updated data, confirming that Russia in 2021 became the fourth largest economy in the world by purchasing power parity (PPP). The top three remained unchanged, with China, the USA and India retaining their positions. Japan was in fourth place for a long time, with Germany in fifth. Since 2015, Russia has ranked sixth or seventh in this GDP ranking by PPP, sometimes also losing to France.

However, earlier this year, World Economics reported that Russia's PPP GDP surpassed Germany for the first time in 2022, with Russia ranked fifth for the first time. This placed Russia ahead of Japan in the ranking. However, new data from the World Bank turned out to be even more sensational.
It follows from this data that Russia managed to move ahead of Japan in 2021 and take fourth place in the ranking. Russia's GDP at PPP in 2021 reached $5.7 trillion. This allowed Russia to overtake all European countries, including Germany ($5.2 trillion) and France ($3.6 trillion, 2.4%), as well as Japan with its $5.6 trillion.
Purchasing power parity (PPP) is a metric created by economists to facilitate accurate comparisons of the cost of identical goods and services across countries. It is believed that PPP is a more accurate measure of economic performance than dollar GDP. To illustrate, if 90 rubles can purchase more than one US dollar, it indicates that the ruble has a higher purchasing power than its exchange rate to the dollar. In essence, this implies that despite the fact that Russian salaries are lower than in the United States and Europe, they are still sufficient to afford basic products and services at a level comparable to citizens of developed countries.

How did such a discrepancy arise between GDP data based on PPP and actual market conditions? The process of calculating PPP indicators is complex and time-consuming, requiring the collection and analysis of huge amounts of data on the prices of goods and services in different countries. The World Bank regularly updates and recalculates economic data based on new or revised statistical indicators, as noted by Yaroslav Kabakov, director of strategy at Finam Investment Company.

It is important to note that the World Bank does not conduct such a study on an annual basis. Instead, it conducts the study once every five years and extrapolates the data for other years. The introduction of a new reference year for calculation has significantly impacted the results for Russia.
The methodology employed by the World Bank and the IMF (International Comparison Program) compares the levels of economic activity in countries at comparable prices in a specified reference year. Previously, this was 2017, but now it is 2021. Comparisons between reference years, in this case 2022 and 2023, are made by extrapolation. "At the same time, extrapolated estimates may differ between the World Bank and the IMF; they are also periodically recalculated and updated," explains Olga Belenkaya, head of the macroeconomic analysis department of the Finam Financial Group.
The recount is now connected precisely with the emergence of a new "reference point" - 2021, previously this point was 2017, Belenkaya clarifies. In other words, based on data for 2017, Russia is the fifth largest economy in the world by PPP, and according to data for 2021, it is the fourth largest economy in the world.
Another important point that could affect the result is that Russia has just clarified its estimate of GDP growth for 2021 and 2022. In 2023, Rosstat revised the estimate of Russia’s GDP growth for 2021 from 5.6% to 5.9%, and also improved the estimate of the decline in GDP in 2022 from 2.1% to 1.2%. These changes could have an impact on the World Bank’s calculations, according to Kabakov.

What factors contributed to Russia’s impressive GDP growth in 2021, the first year following the global pandemic?

Minister of Economic Development Maxim Reshetnikov attributes this growth to the prompt implementation of anti-crisis measures to support businesses, regions and citizens during the pandemic. These measures were particularly beneficial to the most affected industries and small and medium-sized businesses, which helped save many jobs.
According to Reshetnikov, the Russian economy declined by only 2.7% in 2020 compared to the previous year. This is lower than in developed countries. Furthermore, in 2021 the economy not only overcame the decline but also grew by a total of 5.9%. The growth rate was 9%.

Germany and Japan, which Russia had previously overtaken in the global GDP rankings, demonstrated much more modest GDP growth in 2021, with increases of 1.6% and 1.9%, respectively.

The rapid recovery of many countries around the world in 2021 after the coronavirus pandemic was facilitated by government subsidies to the population and businesses affected by lockdowns. It is notable that, in terms of dollars, Russia allocated a significantly smaller sum to the population and business than the United States, Great Britain, Japan and some eurozone countries, which did not hesitate to implement "helicopter money" for the population. However, in European countries, these gratuitous payments did not result in economic growth, but rather accelerated inflation. In Japan, the state also paid "helicopter money". Each citizen received a subsidy of 100 thousand yen, and there were business subsidy programmes. However, GDP grew slowly, as local outbreaks of coronavirus in 2021 led to the fact that many enterprises were forced to temporarily suspend production due to lockdowns. This is according to Natalya Milchakova, leading analyst at Freedom Finance Global.

Another factor that contributed to Russia’s growth was the raw materials orientation of its economy. Commodity prices recovered rapidly in 2021 after the 2020 pandemic. Furthermore, the services sector and housing construction both demonstrated rapid growth, with the former not being affected by the pandemic and the latter dependent on the growth of mortgage lending.
It would appear that in 2022 and 2023 the country retained its position in the ranking. The Russian Minister of Economy attributes this to the timely measures taken to support the economy, despite the pressure of sanctions. In 2022, the administrative burden was reduced, the package of financial support measures for small and medium-sized businesses was expanded, a programme to support large import-substituting investment projects was implemented, and additional budget loans were provided to pay off debt obligations of the regions.
Despite the unprecedented sanctions against Russia, the Russian economy only declined by 1.2% in 2022 compared to the previous year. In 2023, the Russian economy grew by 3.6%. From 2021 to 2023, it increased by a total of 8.4%, according to Reshetnikov.
Japan also faced challenges during this period. The slow growth rate of the Japanese economy in 2022-2023 was associated with other factors, including increased competition from Chinese goods and growing demand for electric vehicles. Japan lost its leadership in this market almost immediately to the United States and China. While Russia was again helped by high prices for raw materials, which increased even more than in 2021.

It is unlikely that Russia will be able to improve its ranking significantly, given the size of the top three economies. China's PPP GDP of $28.8 trillion is almost five times that of Russia's $5.7 trillion. The US GDP at PPP of 23.6 trillion is four times higher than the Russian figure. India's PPP GDP of 11 trillion rubles is almost twice the Russian level.
However, when comparing GDP indicators based on PPP, Russia’s figures are not far from those of Germany and Japan. The figures are $5.2 trillion, $5.6 trillion and $5.7 trillion. As a result, the main focus will be on the competition between these countries in the ranking. With the next recalculations, the positions of countries in the ranking may change, according to experts.

However, it is likely that Russia will retain its fourth position in this indicator over the coming years. Some people have expressed reservations about the use of PPP GDP, and that is their prerogative. However, the country’s position on purchasing power parity has strengthened, and this fact is noted even by biased institutions, according to Mikhail Zeltser, stock market expert at BCS World of Investments.

"Russia's high ranking in the GDP by PPP is contingent on several factors, primarily the maintenance of robust economic growth, elevated hydrocarbon prices, and the stability of the ruble," concludes Milchakova.