Russia's economy on the brink of collapse

Western sanctions are hitting the Russian economy hard, even harder than the Kremlin might expect. Yet Putin continues to claim that the West's 'economic blitzkrieg' has failed. Nevertheless, the Russian president has acknowledged several challenges facing the domestic economy and announced a "temporary" rise in inflation and unemployment, according to Bloomberg. "New realities will require deep structural changes in our economy," Putin admitted.

The Russian leader, according to AFP, also admitted that Russia's current situation "is not easy", although he also stressed that the country will overcome "these difficulties" with "dignity and hard work" as the government has "all the necessary resources to solve long-term tasks". 

However, economists and analysts predict a setback in the Russian economy of at least 30 years, an aspect that will also reduce the standard of living of Russian society for at least the next five years, as Christina Wilkie, a journalist for the business and trade-focused media outlet CNBC, explains.

Both Washington and Brussels promised strong economic measures if Russian troops crossed the border into Ukraine. And so they did. A few days after the Russian invasion, the United States and the European Union agreed to disconnect some Russian banks from the international payment system platform SWIFT, a decision that could, however, also have consequences in other countries.

"Companies doing business in the sanctioned country incur huge costs and possibly high credit losses. Exclusion from the SWIFT system is therefore a double-edged sword: while the economy of the sanctioned country is hit hard, foreign companies operating in the country also suffer," notes DW. 

For this reason, a very large number of international companies have ended their operations in Russia. Some, such as the carmaker Ford, have also alluded to the critical situation in Ukraine. Others, such as Toyota, point to "supply chain disruptions". Swedish company Ikea has also referred to supply problems, as well as highlighting "business conditions".

Starbucks, McDonald's and Spotify are among the many companies that have ceased operations in Russia. Tech giant Apple has even limited access to its digital services, such as Apple Pay. In response, Moscow could nationalise some of the companies that decided to leave the country "without providing guarantees to consumers", as reported by the Russian media Izvestia. Washington, for its part, has condemned "any illegal decision by Russia to seize the assets of these companies".

Another of the measures taken by Brussels that has had harsh repercussions on the Russian economy and the national currency has been the freezing of the Russian Central Bank's assets in EU territory. This, together with the suspension of Russian oil and gas imports by the United States and the United Kingdom, has plunged the rouble into the depths of uncertainty.

During the first days of the invasion in Ukraine, the Russian national currency lost about half its value, from 84 roubles to the dollar before the invasion to 154 roubles to the dollar at the beginning of March. According to the business daily Expansión, the rouble has fallen by 56% against the euro and 52% against the dollar since 23 February, the day before the conflict in Ukraine began.

This situation does not seem to be improving, and the value of the rouble is expected to continue to fall if the conflict in Ukraine does not cease. "Unless there is a ceasefire and something materially changes from this point, it is very difficult to see the Russian rouble gaining value against other foreign currencies, as the country is now being excluded from the global financial system," Ipek Ozkardeskaya, an analyst at Swiss bank Swissquote, told Fortune. Ozkardeskaya also warns of a possible economic recession in Russia. "Prospects for economic growth are limited," he adds.

In this regard, the bank JP Morgan has calculated that the Russian economy will shrink by 7% in 2022 as a result of sanctions against Moscow and the exodus of international companies, many of which "will probably never return". As a consequence, this will lead to a fall in GDP. The financial institution estimates a fall of approximately 12%, which would exceed those of previous crises, in 1998 (10%), in 2008 (11%) and in 2020 with the "shock" of covid-19 (9%), as EFE points out. The JP Morgan report also highlights the "reputational fear about business" and a 13% drop in Russian exports.

On the other hand, Russia has already announced the payment of interest on its debt due on Wednesday. However, Finance Minister Anton Siluanov has announced that he cannot guarantee that the final creditor will receive the payment because of the impact of the sanctions. "We have the money and we have made the payment. Now the ball is in the court of the United States," he told Russian media RT. "It does not depend on us," Siluanov stressed. 

According to the Russian news agency Ria Novosti, the transaction was reportedly carried out in Russian currency, an aspect that ratings agency Fitch has announced will be considered a suspension of payments, although Moscow would still have a 30-day grace period to meet its obligations. If this were to happen, Russia would be committing the first foreign debt default since the Bolshevik Revolution of 1917.

All these situations lead Russian society into isolation and a decline in living standards. The economic and commercial landscape, coupled with heavy political repression, is forcing thousands of Russians to leave the country in search of a better life.

Many have opted to move to visa-free nations, such as former Soviet countries. In Georgia, for example, 25,000 have arrived since Russia's invasion of Ukraine, the BBC reports. Turkey, a state with a large Russian community, is another destination for citizens leaving Russia.

A large number of citizens left the country in early March, when rumours began to surface about the alleged imposition of martial law in Russia. As Russian citizens tell the BBC, fear of closed borders, political repression and compulsory military service have been key factors in making this difficult decision.

For this reason, many of the Russian exiles have begun to consider themselves "refugees". "We are not tourists, we are refugees. We were not fleeing from bullets, bombs and missiles, but from prison. If I wrote what I write now while I am in Russia I would be in prison for 15 or 20 years," wrote journalist Boris Grozovsky on Facebook. 

The Russian regime has established heavy censorship of the media since the invasion of Ukraine began. Also, according to human rights organisations, approximately 15,000 people have been arrested for demonstrating against the war.