Russia’s economic outlook is growing “particularly bleak” as prices rise

LONDON – Russian carmaker Avtotor halted production at Kaliningrad assembly plant after sanctions announced a lottery for free 10-acre plots of land – and the ability to buy seed potatoes – so that employees could grow their own food in the westernmost periphery of the Russian Empire during the “tough economic situation.”

In Moscow, shoppers complained that a kilogram of bananas had come to 100 rubles from 60, while in Irkutsk, an industrial city in Siberia, the price of tampons in a store doubled to $ 7.

banks reduced receipts in response to a paper shortage. Clothing manufacturers they said they were running out of buttons.

“The economic prospects for Russia are particularly bleak,” the Bank of Finland said in an analysis this month. “By starting a brutal war against Ukraine, Russia has chosen to become much poorer and less influential in economic terms.”

Even the Russian central bank predicted a staggering inflation rate of between 18 and 23 percent this year and a drop in total output of up to 10 percent.

It is not easy to understand the impact of war and sanctions on the Russian economy at a time when it is even the use of the words “war” and “invasion” is illegal. President Vladimir V. Putin has insisted that the economy is resisting the measures imposed by the United States, Europe and others.

The financial maneuvers undertaken by Moscow initially helped to dampen the economic damage. At the start of the conflict, the central bank doubled interest rates to 19 percent to stabilize the currency and was recently able to lower rates to 14 percent. the the ruble is on the market at the highest level for over two years.

And even though Russia has had to sell oil at a discount, soaring global prices are pushing oil tax revenues to over $ 180 billion this year, despite production cuts, according to Rystad Energy. Natural gas deliveries will add another $ 80 billion to the Moscow treasury.

In any case, Putin has shown few signs that pressure from abroad will push him to reduce military attacks on Ukraine.

However, the Avtotor Garden Lottery and what it says about the vulnerabilities facing the Russian people, along with the shortage and rising prices, are signs of the economic hardship that has been gripping some Russian businesses and workers since the beginning of the war. almost three months ago.

Analysts say the rift with many of the world’s largest trading partners and technology powers will inflict deep and lasting damage on the Russian economy.

“The really tough times for the Russian economy are still ahead of us,” said Laura Solanko, senior advisor at the Bank of Finland’s Institute for Emerging Economies.

The supply of supplies and spare parts that keep companies alive will run out in a few months, Ms. Solanko said. At the same time, the lack of sophisticated technology and foreign investment will hamper Russia’s production capacity in the future.

The Russian central bank has already acknowledged that consumer demand and loans are falling and that “businesses are experiencing significant difficulties in production and logistics”.

Ivan Khokhlov, who co-founded 12Storeez, a clothing brand that has evolved from a showroom in his apartment in Yekaterinburg to a large company with 1,000 employees and 46 stores, is tackling the problem firsthand.

“With each new wave of sanctions, it becomes more difficult to produce our product on time,” Khokhlov said. The company’s bank account in Europe was still blocked due to sanctions soon after the invasion, as logistical disruptions forced it to raise prices.

“We are faced with delays, disruptions and price increases,” he said. “As the logistics with Europe are destroyed, we rely more on China, which also has its difficulties.”

Hundreds of foreign companies they have either already reduced their business or withdrew from Russia altogether, according to accounts kept by the Yale School of Management. And the exodus of companies continued this week with MC Donalds. The company said that after three decades, it plans to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia.

“I passed the first McDonald’s that opened in Russia in the 1990s,” said Artem Komolyatov, a 31-year-old tech operator in Moscow recently. “It is now completely empty. lonely The sign is still suspended. But inside everything is blocked. He is completely dead. “

Nearby two police officers in bulletproof vests and automatic rifles stood guard, he said, ready to repel any protester.

In the Leningradsky railway station, in one of the few concessions left open on Monday, customers in line for over an hour for one last taste of McDonald’s burger and fries.

The French car manufacturer Renault It also announced a deal with the Russian government on Monday to leave the country, although it includes an option to buy back its stake within six years. And the Finnish paper mill, Stora Ensosaid it was diving into three corrugated packaging plants in Russia.

More profound damage to the structure of the Russian economy is likely to increase in the coming years, even in making money energy sector.

Europe’s vote to turn its back on Russian oil and gas will force Moscow to seek further customers, particularly in China and India. But the pivot to Asia, said Daria Melnik, senior analyst at Rystad Energy, “will require time and massive infrastructure investments that in the medium term will see Russia’s production and revenues drop precipitously.”

Without sufficient storage capacity, Russia may have to cut its overall oil and gas production. Wells are not like taps, however, which turn on and off easily: the cap is one, and most likely it will never be able to be used again.

“Some of the Russian spare capacity will be destroyed,” Ms. Melnik said of the country’s oil flow.

Anton Siluanov, the Russian finance minister, said the sanctions could cause as much as a 17 percent decline in oil production this year.

The larger slides are evident in other areas. Passengers automobile production it fell by 72% in March from the previous year.

In the industrial sector, which includes chemicals, oil, gas and manufacturing, the four-week average of the volume of imports fell 88% from the beginning of February, before the invasion, according to FourKites, which tracks the chains of supply. The volume of consumer-related imports decreased by 76%, making it difficult for Russians to purchase tampons and cell phones and for hospitals to obtain replacement parts and supplies for dialysis machines and ventilators.

In an April survey of health care workers, 60% of respondents said they have already experienced deficiencies. Among the imported products, the items missing the most included disposable gloves, catheters and suture materials.

For consumers, the price jumps on commodities have been so obvious that a Twitter account A mocking social media post has surfaced in which Russians complain of rising prices on everything from Palmolive shampoo to nectarines. It’s called But what happened? and has nearly 44,000 followers.

A 26-year-old Moscow resident, who asked not to use her name out of fear of reprisals, said the cost of imported fruit, such as the bananas she puts in oatmeal every morning, has skyrocketed.

“It’s the product I buy every time I go to the store, so I noticed it immediately,” she said. Her total grocery bill went up by about a third, she said.

In Irkutsk, the price of a box of tampons doubled from $ 3.50 within weeks of the war, said a 23-year-old designer who makes $ 450 a month and asked not to be named. “For the same amount of money, I could buy a basket of groceries or a new T-shirt,” she said, comparing prices before the war.

Outside the country, Russia’s economic prospects are also shrinking. Earlier this month, Fennovoima, a Finnish company that operates nuclear power plants, abruptly shut down announced that he was terminating his contract to build a plant in the northern city of Hanhikivi with Rosatom, the Russian State Nuclear Energy Corporation, which lists Putin as its founder.

“We are extremely disappointed,” said Rosatom, which owns a third of the project through a Finnish subsidiary, in a statements: “The reasons behind this decision are completely inexplicable for us”.

Ivan Nechepurenko contributed reportage.