Russians brace for trouble as Putin’s war on Ukraine plunges economy into crisis

Russians are bracing for an economic recession that could be the deepest since the 1990s after the United States and its allies imposed ‘crushing’ sanctions on Moscow, seeking to punish President Vladimir Putin for the unprovoked invasion from Ukraine.

Analysts say citizens face a future characterized by runaway inflation, rising unemployment, expensive credit, capital controls, commodity shortages and restricted travel – issues emblematic of the decade since the end of the war. collapse of the Soviet Union in 1991 – as the Russian state waged war in an apparent attempt to subjugate its smaller western neighbour.

The bleak outlook, which could persist for years if Putin goes ahead with his military goals, stands in stark contrast to the optimistic economic forecast made just three months ago by the International Monetary Fund, which predicted growth of 2.8 and 2.1% respectively in 2022 and 2023.

Instead, Putin’s invasion of Ukraine on February 24 triggered an unprecedented series of sanctions that are rapidly isolating Russia from the West and destroying its economy.

The ruble has fallen to historic lows, interest rates have soared to 20%, near a two-decade high, and foreign companies are fleeing a country that is now widely seen in the West as a pariah state. Russia’s economy could shrink by up to 10% this year, an analyst says, in its worst performance since 1994.

The turmoil has Russians across the country rushing to withdraw cash from ATMs, buy imported consumer goods such as computers and phones, and convert their rubles where possible, in the fear of banking disruptions, rising prices and further devaluation.

People wait to withdraw US dollars and euros from an ATM in St. Petersburg on February 25.

Putin became interim president on the last day of 1999, and a prominent Kremlin narrative cast him as something close to a savior – a leader who rescued Russia from the deprivations of the first post-Soviet decade and brought economic stability where there had been turmoil.

That picture risks being torn apart as Russians, already hit by falling real incomes in recent years, face a newly uncertain future.

“Yes, we are back to the 1990s, maybe an even worse time,” Elvira, a mother of two from the wealthy Siberian oil town of Surgut, said in a post on her social media page. “But what can you do, such are the times.”

The Group of Seven (G7) countries as well as other European countries, including Switzerland, a major financial center for wealthy Russians, have imposed severe financial sanctions on Russia since the invasion, including measures targeting its central bank.

The misfortunes of the ruble

The sanctions froze a significant portion of the central bank’s foreign exchange reserves, weakening its ability to protect the rouble, which slumped by more than a quarter to a record low of 121 to the dollar on February 28 before recover some of these losses. .

The ruble has lost more than a third of its value since Russia began massing more troops near Ukraine’s borders in October, driving up the prices of imported goods.

Natalia Orlova, chief economist at Moscow-based Alfa Bank, said she now expects inflation to hit 30% in the coming months.

Across the country, Russians expressed concerns about inflation and other potential problems for their wallets in comments to RFE/RL, saying they would cut discretionary spending and cut budgets for groceries and d other commodities.

‘The money I have in rubles will lose its value’, a man in the Baltic Sea enclave of Kaliningrad say the current time, an English language network operated by RFE/RL in cooperation with VOA. “Prices will go up – but wages probably won’t.”

After US tech companies Google and Apple disabled their payment apps in Russia in response to sanctions, some citizens ran into trouble

“The payment app on my phone stopped working today; I couldn’t pay at the store. So I came here to get cash from an ATM,” a man at a bank branch in the Siberian city of Tomsk who gave only his first name, Nikolai, told RFE/RL’s Siberia. Realities.

A woman walks past a closed 're:Store', an Apple retailer in a shopping center in St. Petersburg on March 2.

A woman walks past a closed ‘re:Store’, an Apple retailer in a shopping center in St. Petersburg on March 2.

In Ulan-Ude, the capital of the Buryatia region near Lake Baikal, Oleg Mokhosoyev went in search of cash over the weekend and had to try several ATMs before finding one that had something to sell. remove.

“I heard that debit cards might not work so I decided it was better to be safe than sorry,” he said.


Oleg Abyelyev, professor of economics at the Academy of Foreign Trade in Moscow, told Siberia.Realities that high interest rates will kill the country’s mortgage market for the foreseeable future.

“There are few Russians who can afford tariffs above 20%,” he said.

This creates problems for homebuilders across the country as well as the construction and real estate industries in general.

“My transactions are collapsing due to the political atmosphere,” a Kaliningrad real estate agent told Current Time, referring to the situation that has unfolded since the start of the invasion of Ukraine.

Construction is just one of the sectors likely to experience a sharp rise in unemployment.

Banking, IT outsourcing, manufacturing, travel and hospitality, and retail could also see mass layoffs motivated by sanctions, devaluation and Russia’s pariah image, officials said. analysts and industry professionals.

Soaring inflation and shortages of goods are just two of the problems that Russian consumers will face if the Ukrainian crisis continues.

Soaring inflation and shortages of goods are just two of the problems that Russian consumers will face if the Ukrainian crisis continues.

Sanctions imposed by the United States and its allies also include export controls designed to deprive Russia of the technology needed to modernize its economy, including its military-industrial base. They could also affect car production.

Economist Vladislav Inozemtsev, director of the Center for Research on Post-Industrial Society, says RFE/RL’s Idel.Realities that a “wave” of Western companies will cancel their contracts with Russian companies and independently impose “all sorts of restrictions” on their dealings with Russia to protect themselves from reputational risks and sanctions.

Major foreign investors, including energy giants BP and Shell, have already announced their withdrawal from Russia. Major consumer goods vendors, such as Apple and Dell, said they would halt sales in the country.

Elina Ribakova, an economist at the International Institute of Finance, said a virtual conference organized by BNE Intellinews on March 1 that Russia’s economy could shrink by double digits this year because its companies may not be able to acquire key Western components for manufacturing.

“Companies will no longer work with Russia because it’s politically toxic,” Ribakova said. The country is “essentially going from one economic structure to a completely different one where [it is] closed and I think that’s what’s causing this big contraction.

Even if foreign companies are still willing to work with Russian customers, inflation will remain a major headache, the owner of a major food producer in the Siberian city of Tomsk, who turned to Siberia.Realities, told Siberia.Realities. identified only as Aleksandr.

“I’m in shock,” he said.

Producers must notify supermarkets and other retailers two months in advance of a price increase, he said, adding that his company will have to fully absorb the higher cost of imported packaging and other components over the next eight next weeks.

If retail stores fear further inflation and stock up on items before price increases can take effect, “they will just destroy producers,” Aleksandr said.

“I am against the war in Ukraine,” he said. “Why was it necessary to take this drastic step [and] cause this crazy economic downturn? They should have come to an agreement. »

Siberia.Realities by RFE/RL, Idel.Realities by RFE/RL and Current Time contributed to this report