From Russia economy has avoided a devastating collapse so far despite unprecedented sanctions triggered by the war in Ukraineallowing Vladimir Putin to rally his people against the West and in support of his invasion.
However, experts and even top Russian officials say trouble is just around the corner. The reserves that have underpinned the economy to this point are beginning to run out, with Moscow’s mayor warning of massive job losses. The head of Russia’s central bank said this week that the impacts of existing and future sanctions will soon be felt in “the real economy.”
“It’s very much an artificial bolstering of the economy that has taken place” up to this point, said Lisa Sundstrom, a professor of political science at the University of British Columbia who studies Russia.
“The question now is, how long can this go on?”
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Why is Russia’s economy surviving?
After Western nations announced their first rounds of economic sanctions in the days after Russia’s invasion of Ukraine on February 24, the Russian ruble lost nearly half its value and stock markets were closed for the first month of the lockdown. war to prevent a crash.
Two months later, the ruble has largely recovered, becoming the world’s best performing currency in March. Trading also picked up once stock markets reopened last month.
Economists say that the measures taken by the Kremlin and the Russian Central Bank (raising interest rates to 20 percent, forcing Russian companies to exchange 80 percent of their profits abroad for rubles) contributed to the Recovery.
Russia has also dipped into half of its estimated $620 billion in uninvested foreign currency holdings in the United States and Europe — currently frozen by Western sanctions — to protect the ruble and stimulate public spending.
Russia also continues to export oil and other energy products to India, China and Europe, adding billions of dollars to the economy each month.
The freezes on Russian imports and exports by the West have led international financial organizations to predict that Russia’s GDP will shrink by 10 to 15 percent by the fall, a drop that the Columbia University economist British, James Brander, calls “a serious recession, but not a catastrophe.” .”
“The Russian economy is being damaged, but it is not at a level where it affects the war effort,” he told Global News.
“For most people, it’s an inconvenience. And for Putin, I don’t think it’s a problem at all at this stage, and I don’t think he really cares that much.”
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Putin sees recovery as a victory
On Monday, Putin said in a televised meeting with top officials that the West’s hope of economic collapse had failed, echoing similar comments he has made in public this month.
He said the sweeping sanctions were aimed at “rapidly undermining the financial and economic condition of our country, causing panic in the markets, the collapse of the banking system and large-scale shortages of products in stores.
“But we can already say with confidence that this policy towards Russia has failed,” he continued. “The economic blitzkrieg strategy has failed.”
After widespread protests at the start of the war, domestic support for Putin appears to have increased. the last poll by the Levada Center, an independent pollster in Moscow, suggests that 83 percent of Russians approve of the leader, up from 69 percent in January.
The Kremlin has introduced harsh penalties for protests and any media reports that deviate from the Kremlin’s description of the invasion as a “special military operation.” That, and state media attacks on the West, appear to have had an impact, according to Levada.
“The confrontation with the West has consolidated people,” Denis Volkov, director of the pollster, told the New York Times when the poll was published on March 31. He added that some of the pro-Putin respondents said they did not normally support the president. , but he had decided that now is the time to do it.
Sundstrom says that even independent polls in Russia aren’t always accurate, as they don’t measure why people respond the way they do, suggesting that fear of speaking out against Putin may be playing a role.
But he adds that because the government has done enough to keep the economy “at an acceptable level” for the average Russian, it has allowed Putin to benefit from a “rally around the flag” mentality that often boosts popularity. of wartime leaders.
“I think the consensus is that a lot of the popularity is real,” he said.
“At the same time, if you believe that everyone around you likes the leader, then you will like the leader yourself. Somehow you think it’s the right thing to do.”
Sanctions further isolate Russia and crush its economy
Sundstrom says Putin’s popularity could drop “quite quickly” if internal discord grows, particularly if the economic situation worsens.
Mayor of Moscow Sergei Sobyanin warned monday that around 200,000 people are at risk of losing their jobs when Western companies withdraw from the capital in protest at the war. He announced that $40 million will be spent to help workers laid off by foreign companies find temporary employment and new jobs.
Russian Central Bank President Elvira Nabiullina sounded even more serious in her briefings to Russian lawmakers this week.
Inflation in Russia is now 17.6 percent and is on track to accelerate to 22 percent this year, while the economy will shrink by 9.2 percent in 2022, according to a survey of economists by the bank. in April.
Nabiullina told the Duma, the lower house of Russia’s parliament, on Thursday that almost all products made in Russia rely on parts imported from abroad, which have largely been banned amid sanctions. Russian export bans will also be felt from the second quarter of this year, she added.
In addition, he warned that “the period during which the economy can live on reserves is finite.” He explained that reserves not frozen by the West are largely invested in gold and the Chinese yuan, which may do little to further revive the ruble.
Brander, the UBC economist, said it will take years for Russia’s manufacturing sector to find ways to make up for a lack of Western parts and create new supply chains.
“As time goes on, it’s going to be more and more difficult to produce in Russia,” he said.
“My only concern is that (the economic pain) doesn’t add up fast enough,” he added, noting how little impact such shortages will have on Ukraine’s battlefield right now.
Russia-Ukraine conflict: Sanctions hit the Russian economy
The European Union, for its part, is reflecting how to curb Russian oil imports, seeking a gradual approach in line with the four-month transition away from Russian coal announced the block earlier this month.
If passed, it would deal a severe blow to Russia’s revenue stream which is currently estimated at more than $800 million a day. according to the Belgian economic institute Bruegel.
Sundstrom says the buildup to these looming catastrophes may very well lead to real impacts on average Russians, threatening Putin’s support.
“At a certain point, rubber will hit the road when the government finds itself unable to pay people’s pensions, provide parts for manufacturing, all these things that Russians depend on day to day,” he said.
“What happens after that, we really don’t know at this point.”
— with Reuters files
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