At an economic conference in Vladivostok on September 7, Russian President Vladimir Putin continued to claim that Western sanctions over the Ukraine war have failed to dent the Russian economy.
“Russia is coping with the economic, financial and technological aggression of the West … Estimates and forecasts of economic dynamics … are now much more optimistic than they were in early spring,” Putin claimed at the annual Eastern Economic Forum.
The statement is misleading. Thanks to a September 5 scoop from Bloomberg News, we know that the actual impact could be “far more dire” than Putin and other Russian officials have publicly acknowledged.
Bloomberg based its assessment on review of a confidential report prepared for a closed-door meeting of Russian officials on August 30. Bloomberg said it confirmed the report’s authenticity.
The report outlines three scenarios that show Russian economic growth plunging as much as 12 percent through 2024. A middle-ground scenario predicts pre-sanctions economic activity won’t be achieved until late 2027.
Referring to sanctions, Bloomberg said:
“Beyond the restrictions themselves, which cover about a quarter of imports and exports, the report details how Russia now faces a ‘blockade’ that ‘has affected practically all forms of transport,’ further cutting off the country’s economy. Technological and financial curbs add to the pressure. The report estimates as many as 200,000 IT specialists may leave the country by 2025, the first official forecast of the widening brain drain…
“The document calls for a raft of measures to support the economy and further ease the impact of the restrictions in order to get the economy recovering to pre-war levels in 2024 and growing steadily after that. But the steps include many of the same measures to stimulate investment that the government has touted over the last decade, when growth largely stagnated even without sanctions.”
Russia’s minister of economic development and other Russian economists tried to knock the report down.The minister, Maxim Reshetnikov, told RIA Novosti that the Russian economy is “coping adequately with the sanctions pressure” and dismissed the scenarios Bloomberg cited.
"[W]e have always considered and consider different scenarios. ... There are scenarios, let's call them 'all the fears of the world.' ... [T]hese scenarios should be treated as, let's say, working horror stories. ... And we have a scenario that we can only exceed the level [of GDP growth] of 2021 by 8%. But I would emphasize that this is in the event that we would not have made the decisions that have already been made."
Perhaps, but Bloomberg noted that:
“All the scenarios see the pressure of sanctions intensifying, with more countries likely to join them. Europe’s sharp turn away from Russian oil and gas may also hit the Kremlin’s ability to supply its own market, the report said.”
A team of 42 researchers with Yale's Chief Executive Leadership Institute, including some in Russia and Eurasia, reviewed Putin’s responses to sanctions and didn’t give them a high grade, according to highlights:
“… Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent; the hollowing out of Russia’s domestic innovation and production base has led to soaring prices …
“As a result of the business retreat, Russia has lost companies representing ~40% of its GDP [gross domestic product].
“Putin is resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over these structural economic weaknesses, which has already sent his government budget into deficit for the first time in years and drained his foreign reserves even with high energy prices…
“Kremlin finances are in much, much more dire straits than conventionally understood.”
"Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia ...
"Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual."
It is true that Russia has been able to continue exporting oil, a factor that has lessened the impact of sanctions. Moreover, China has come to Russia's aid, agreeing to pay for gas and oil in rubles rather than dollars or euros.
An assessment by Reuters in late August for the six-month anniversary of Russia’s war on Ukraine found that the ruble had partly recovered from an initial, post-invasion collapse, and that inflation had lessened, as Putin noted in his remarks at Vladivostok.
Still, Russian consumers told Reuters they were feeling the heat:
“While sanctions mean consumer goods like Guinness beer, Zara clothes and Nespresso coffee capsules have disappeared from the shelves, some Russians told Reuters they were also struggling to find staple goods, including some medicines…
" 'I, as a retired person, cannot afford what is on offer. Prices for the products I buy have jumped by 30% on average,’ said Larisa, a 65-year-old pensioner from Belgorod, a city near the Ukrainian border.
“Official figures show consumer prices have gone up 10.7% so far this year … But according to statistics service Rosstat, prices for sanitary pads have risen 41% year-to-date, those for foreign-made cars are up 39%, and toilet paper prices are up 27%.
“ ‘I've started to spend more, but I've also started to save more,’ said Tatiana Lazar, a 33-year-old confectioner and mother of two from Moscow. ‘Now I limit my desires, my wants in shops and in the standard of living. I don't really believe that prices will go down.’ "