After Russia invaded Ukraine on February 24, 2022, the United States, the European Union, Britain, South Korea, and Japan announced a slew of sanctions that U.S. President Joe Biden later bragged had “basically crushed” the Russian economy. CNN and other Western news outlets reported that the sanctions would cause Russia to default on its foreign debt and that the Russian rouble would be severely weakened.
Yet even though more than 500 foreign companies have closed up shop in Russia since February, the economy appears to be bent rather than broken. Inflation reached a record-high 7.4% in April, but that was comparable to other countries in Europe. The unemployment rate, which had dropped to a record 4% prior to the invasion, is expected to climb to 8% by the end of the year, according to Russian economic think tanks. Western news outlets and economic experts also anticipate a significant increase in the number of unemployed as multinational companies exit the country. Official statistics regarding the unemployment rate were unavailable at the time of publication.
The growth of the Russian economy slowed down in the first quarter of 2022 with the gross domestic product rising 3.5% from a year ago which is 0.5% down from a gain of 4% in the last three months of 2021, according to a note published on May 18 by the country’s Federal Statistics Service.
This decrease may be a sign of the initial impact of the sanctions imposed after Vladimir Putin’s decision to invade Ukraine. Earlier in April, the World Bank projected there would be a 11.2% contraction of the Russia’s economy output in 2022.
After imminent collapse, the Russian rouble experienced dramatic gains to leave it stronger against the U.S. dollar and Euro than at pre-war levels, mostly due to high levels of income from oil and gas exports and strict state control of the currency. Bloomberg has declared that the rouble is this year’s best-performing currency. However, should the currency rebound then the costs of this may be felt in the future, experts predict. Furthermore, the Moscow Stock Exchange, which was shut by presidential decree during the first month of the war in order to prevent a meltdown, has also made a strong recovery.
The European Union’s plan to dramatically limit imports of oil and gas has so far also backfired as Russia continues to announce record-high profits from the sale of fossil fuels. After six rounds of failed negotiations to enact a total EU-wide ban on importing Russian fuel, several buyers from the EU have, instead, begun to buy oil and gas using Russian roubles, according to Bloomberg.
In addition, non-European countries have stepped up to buy Russian gas including China which signed an oil and gas deal in February worth approximately $117 billion. During the first four months of 2022, Russian exports to China climbed 60% year on year.
Since Russia does not now publish detailed monthly trade statistics, it is difficult to analyze its trade balance but, according to The Economist, imports have dropped significantly and it is not clear for ‘how long’ and ‘if’ the economy can substitute those imported goods.
Boomerang
Statistics show that the economies of those countries that imposed sanctions against Russia have experienced rampant inflation and may register an economic decline.
Germany’s economy is projected to shrink by at least 2% this year, and the Bundesbank has warned that the disruption of supplies could trigger a sharp recession in 2022. In April alone, inflation reached an all-time high of 7.4%, causing the government to debate whether to offer some citizens “relief payouts” to help with soaring transportation and energy costs.
Matters are equally grim across the rest of Western Europe. Recently re-elected French President Emmanuel Macron has announced a program to provide food vouchers and an increase in welfare payments to help combat a 5.1% jump in inflation. Britain has announced that the number of households living in “fuel poverty” has doubled as the sanctions saw energy prices skyrocket, and the Bank of England has warned that high inflation could last “years, rather than months.”
Furthermore, in contrast to the Russian rouble, the Euro is now trading at only just slightly above the U.S. dollar, and the European Central Bank projects that it will hit parity with the dollar within six months or less as inflation across the zone continues to take its toll.
Even the United States seems to be struggling as inflation rates have hit 40-year highs, and gas prices continue to set new record highs every week. Interruptions to the supply chain have left the country facing a desperate shortage of baby formula, and once-invincible firms like Apple and Microsoft have seen share prices nosedive. The Federal Reserve announced that it expects to hike borrowing rates at least six times this year in an effort to combat inflation as U.S. Treasury yields continue to fall.
Experts disagree on what it will take for the war in Ukraine to come to an end but, for now, it appears that the Russian economy has found a way to resist damage despite its status as the world’s most sanctioned country. However, in the long run, Vladimir Putin cannot avoid a ruinous economic outcome as a result of his aggression, according to U.S. officials.
“The economic crisis Russia faces will leave the Kremlin with fewer resources to prop up the Russian economy, pursue its invasion in Ukraine, and project power in the future,” commented U.S. Deputy Treasury Secretary, Wally Adeyemo, in mid-April.
See also: How do the sanctions imposed on Russia affect the global economy? | Experts’ Opinions
Article updated on May 19, 2022, with additional information on Russia GDP evolution, trade balance, and expert predictions on sanctions effect in the long run.
