Russia’s economy has prevented a devastating collapse so far, despite unprecedented sanctions sparked by the war in Ukraine, which allowed Vladimir Putin to unite his people against the West and support his invasion.
Still, experts – and even senior Russian officials – say the problems are just around the corner. The reserves that have sustained the economy so far are beginning to run out, and the mayor of Moscow is warning of massive job losses. The head of Russia’s central bank said this week that the effects of existing and future sanctions would soon be felt in the “real economy”.
“This is largely an artificial support for the economy that has happened so far,” said Lisa Sundström, a political science professor at the University of British Columbia who is studying Russia.
The question now is how long can this last?
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2:06 War in Ukraine: West Criticized for Putting Business Losses Over Human Lives War in Ukraine: West Criticized for Putting Business Losses Over Human Lives – April 6, 2022
Why is the Russian economy surviving?
After Western countries announced their first rounds of economic sanctions in the days since Russia’s invasion of Ukraine on February 24, the Russian ruble lost almost half its value and stock markets were closed in the first month of the war to avoid a collapse.
Two months later, the ruble largely recovered, becoming the best-performing currency in the world in March. Trading also recovered after stock markets reopened last month.
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Economists say the steps taken by the Kremlin and Russia’s central bank – raising interest rates to 20 percent, forcing Russian businesses to exchange 80 percent of their income abroad in rubles – have contributed to the recovery.
Russia has also sunk half of its estimated $ 620 billion in foreign currency, which has not been invested in the United States and Europe – currently frozen by Western sanctions – to protect the ruble and fuel government spending.
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Russia also continues to export oil and other energy products to India, China and Europe, bringing billions of dollars into the economy every month.
The freeze on Russian imports and exports from the West has prompted international financial institutions to forecast Russia’s GDP to shrink by 10 to 15 percent by autumn, a decline that British Columbia University economist James Brander called “a serious recession but not a catastrophe.” ”
“Russia’s economy is damaged, but not at a level that will affect military efforts,” he told Global News.
“For most people, this is an inconvenience. And for Putin, I don’t think that’s a problem at this point, and I don’t think he really cares that much.
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0:59 Putin says the possible nationalization of Russian assets abroad is a “double-edged sword” Putin says the possible nationalization of Russian assets abroad is a “double-edged sword” – April 5, 2022
Putin sees the recovery as a victory
On Monday, Putin told a televised meeting with senior officials that the West’s hopes of economic collapse had failed, echoing similar comments he made publicly this month.
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He said that the widespread sanctions are aimed at “quickly undermining the financial and economic situation in our country, causing panic in the markets, the collapse of the banking system and a large shortage of goods in stores.
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“But we can now say with confidence that this policy towards Russia has failed,” he continued. “The economic blitzkrieg strategy has failed.
Following widespread protests at the start of the war, domestic support for Putin appears to have increased. A recent poll by the Levada Center, an independent sociologist in Moscow, shows that 83% of Russians approve of the leader, up from 69% in January.
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The Kremlin has imposed harsh penalties for protests and all media reports that deviate from the Kremlin’s description of the invasion as a “special military operation.” This, as well as state media attacks on the West, appear to have had an impact, according to Levada.
“The confrontation with the West is consolidating people,” Denis Volkov, director of the poll, told the New York Times when the poll was published on March 31. He added that some respondents in Putin’s favor said they did not usually support the president, but decided it was time to do so.
Sundström says even independent polls in Russia are not always accurate, as they do not measure why people react the way they do – suggesting that fear of speaking out against Putin may play a role.
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But she added that because the government had done enough to keep the economy “at an acceptable level” for the average Russian, it had allowed Putin to take advantage of the “flag rally” mentality that often raises the profile of military leaders. time.
“I think the consensus there is that a lot of the popularity is real,” she said.
“At the same time, if you think everyone around you likes the leader, then you will like the leader yourself. Somehow you think that’s the right thing to do. “
2:10 Sanctions further isolate Russia, crush its economy Sanctions further isolate Russia, crush its economy – March 10, 2022
Sundström says Putin’s popularity could plummet “quite quickly” if internal divisions increase – especially if the economic situation worsens.
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Moscow Mayor Sergei Sobyanin warned on Monday that about 200,000 people are at risk of losing their jobs as Western companies withdraw from the capital in protest of the war. He announced that $ 40 million would be spent to help workers laid off by foreign companies find temporary jobs and new jobs.
Russian Central Bank President Elvira Nabiulina sounded even scarier in her reports to Russian lawmakers this week.
Inflation in Russia now stands at 17.6% and is set to accelerate to 22% this year, while the economy is expected to shrink by 9.2% in 2022, according to a survey of economists conducted by the bank in April .
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Nabiulina told the Duma, the lower house of Russia’s parliament, on Thursday that almost every product made in Russia relies on parts imported from abroad, which are largely banned amid sanctions. The bans on Russian exports should also be felt in the second quarter of this year, she added.
She also warned that “the period during which the economy can live on reserves is over.” She explained that the reserves, which were not frozen by the West, were largely invested in gold and the Chinese yuan, which could do little to further revive the ruble.
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Brander, an UBC economist, said it would take years for Russia’s manufacturing sector to find ways to make up for the lack of Western parts and create new supply chains.
“Over time, it will become increasingly difficult to produce in Russia,” he said.
“My only concern is that (economic pain) will not accumulate quickly enough,” he added, noting how little impact such a shortage would have on Ukraine’s battlefield at the moment.
2:01 The conflict between Russia and Ukraine: Sanctions hit the Russian economy Conflict between Russia and Ukraine: Sanctions hit the Russian economy – February 28, 2022
Meanwhile, the European Union is considering how to curb Russian oil imports, seeking a step-by-step approach in line with the bloc’s four-month transition from Russian coal earlier this month.
If approved, it will hit Russia’s revenue stream, which is currently valued at more than $ 800 million a day, according to the Belgian Economic Institute Bruegel.
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Sundström says the accumulation of these impending catastrophes could very well lead to real effects on the average Russian, threatening Putin’s support.
“At some point, the tire will hit the road when the government is unable to pay people’s pensions, provide parts for production, all these things that the Russians rely on every day,” she said.
“What happens next, we …
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