It’s a little piece of music that we’re hearing more and more in the West, and that’s the joy of Russian propaganda: the sanctions Western countries imposed on Moscow after it invaded Ukraine aren’t working.
Such measures would not only be useless, but, it is sometimes argued, even counterproductive, since Vladimir Putin could enrich his country thanks in particular to record energy prices on world markets.
It is true that the slump is less immediately visible than it appears, and even the International Monetary Fund (IMF) agreed in late July that the country had weathered the shock better than expected. It’s also true that the ruble is doing better than resisting, thanks to firm – but unsustainable – action by the Russian central bank.
It’s true, after all, that Russian oil has found two important new outlets in China or India – but it’s worth noting that despite significant immediate revenues, they’re discount customers and the market is already down.
But denying Russia’s current and future economic slump appears to be a lie, pure and simple. Economists even said in March that the war in Ukraine could cause Russia’s economy to jump back thirty years.
In particular, the country is suffering from an unprecedented brain drain that threatens to weigh heavily on the country’s future. In addition, the Russian industry, which is heavily dependent on Western technologies and IT, is suffering – and its tanks now use components intended for dishwashers.
For example, a report published by Yale University in late July stated that the myth of a resilient Russian economy in the face of a Western economy battered by the energy war is “simply false”: the damage is massive, Moscow is in deep trouble, and since its energy gains may hit one heading for a slow, long-term decline, there is a risk that this will only increase.
And if you don’t want to believe this thesis, you may prefer an internal source in Russia, you can rest easy: Bloomberg has found one. The American media thus had access to a confidential report commissioned by the Kremlin that paints a dark present and future for the country.
overthrow
When Russia publicly states that the recession will be limited to 3% in 2022, the report is much less optimistic. Thus, three scenarios are described. In the best Russian world, GDP would contract by 3.8% in 2023 before returning to -1.3% of its pre-war level in 2024.
In a scenario called inertia, the decline would be 8% in 2023 and 6% cumulatively the following year. In a worst-case scenario, the country’s economy would collapse by 11% next year and remain at -11.9% in 2024 from pre-invasion levels.
In the median scenario, the Russian economy would only return to pre-war levels in 2028, in the worst case it would remain at -3.6% in 2030 compared to 2021. The report notes that the country is suffering from a de facto blockade that severely limits its export capacity. It also notes the departure of computer specialists crucial to the country’s future – more than 200,000 who have left Russia since the conflict began.
Finally, the document warns that declines in exports of oil, metals and chemical products for wood could be so prolonged that “these sectors will cease to be the engines of the economy”.
As for shutting down the gas destined for Europe, it could cost the Russian state $6.6 billion each year, or about the same in euros, in various taxes. Like the country’s oil embargo, this net loss is likely to weigh heavily on the country’s investment in its valuable energy sector, putting its future income at great risk.
Regarding imports, the Russian report, read by Bloomberg, explains that it is often impossible to find alternatives to products that are victims of sanctions, hampering domestic production. Even the agri-food sector is suffering, to the point where Russians may be quickly pushed to change and reduce their food consumption.