MOSCOW (`) — Russians are noticing that prices for some imported staples such as fruit, coffee and olive oil have risen sharply. The most Global brands have disappeared – or were reborn as Russian equivalents under new, pro-Kremlin ownership. More and more Chinese cars are whizzing through the streets. If you want a specific luxury cosmetic, you may be out of luck.
Apart from this, Economically, not much has changed For most people in President Vladimir Putin's Russia, more than two years after he sent troops to Ukraine.
This is despite the comprehensive sanctions which have cut off much of Russia's trade with Europe, the US and its allies.
This sense of stability is crucial for Putin as he orchestrates his preordained victory in the EU Presidential election March 15-17 for a fifth, six-year term.
Inflation is higher than most people would like, namely over 7% – above the central bank's target of 4%. But unemployment is low and the economy is expected to grow 2.6% this year, twice as much as previously forecast, according to the International Monetary Fund. This is well above the 0.9% Expansion forecast for Europe.
“Of course there are difficulties – they are related to the general situation in the world,” said Andrei Fedotov, 55, walking along the central shopping street Tverskaya Street a few blocks from the Kremlin. “We know this very well, but I believe we will overcome it.”
Higher prices “of course bother me — like any consumer, I see them going up,” said Fedotov, who works in education. “It has to do with the time that we are in and that will pass.”
Brand manager Irina Novikova, 39, was optimistic despite higher prices in stores: “More domestic products have appeared, more agricultural products. Yes, we all see that some goods have disappeared.”
“Prices have gone up – if I used to buy three items at a certain price, now I buy one,” she said, but added: “Look for Russian products, the stores with Russian goods.”
“The industry may have suffered, we know there have been some setbacks in this regard, but here too we are adapting, recalibrating our thinking and starting to reach out to our Chinese friends,” Novikova said.
Firmly Russian spending on military equipment and high payments to volunteer soldiers stimulate the economy significantly. Government-sponsored mortgages support home buyers and give the booming construction sector a strong boost, as several mammoth studies show High-rise developments are going up on the banks of the Moscow River.
Inflation is annoying, but it's nothing new. After taking over Ukraine's Crimean peninsula in 2014, Russia became more independent in producing its own food. The resulting Western sanctions led the government to ban a wide range of food imports from Europe.
Planned government spending this year is about twice as high as in 2018. Nevertheless, the deficit remains manageable due to taxes and taxes Oil revenues continue to flow.
So-called parallel imports via third countries such as Georgia, Kazakhstan and Uzbekistan have allowed Russians with money to continue buying Western products – from sneakers to cell phones to cars – from companies that no longer do business in Russia, usually at a significant markup.
A BMW SUV is still easily available in Germany, albeit at twice the price. IKEA has closed its 17 Russian storesbut its furniture and homewares can be purchased online – at a price.
Apple is gone, but a 512-gigabyte iPhone 15 Pro Max is selling on the Russian Wildberries retail site for the equivalent of $1,950, which is about the same price the phone sells for in Germany.
Not that there are no burdens on the economy. Companies are facing labor shortages after hundreds of thousands of men left the country after the crisis began Fighting in Ukraine To avoid mobilization, hundreds of thousands signed other military contracts.
Meanwhile, Russia's oil exports shifted from Europe to China and India due to boycotts by Ukraine's allies. In order to avoid sanctions and a Price cap for oil deliveriesRussia has had to spend billions to buy a shadow fleet of aging tankers that do not rely on Western insurers that must meet the price cap. Russia too lost its lucrative natural gas market in Europe after most of its pipeline supply was cut off.
The car industry was decimated after foreign owners such as Renault, Volkswagen and Mercedes withdrew. China replaced the European Union as Russia's most important trading partner Chinese vehicles quickly took over According to Ward's Intelligence, this was half of the car market last year.
Many foreign companies have also left the company or sold their businesses to local partners at bargain prices. Others, including Danish brewer Carlsberg and French food company Danone, have seen their Russian businesses seized by the government.
“The economy plays a very important role in all of Putin’s elections,” said Janis Kluge, an expert on the Russian economy at the German Institute for Science and Politics. “For most Russians who ignore the war, the economy is actually the biggest problem.”
Economic stability “is a signal that Putin can use to the other elites that he is still able to mobilize the masses.” And for that it has to be real and not just a manipulated number,” said Kluge.
“That's why it's still important that there is that real support, even if there is no chance at all for voters to change the office,” he said.
Gross domestic product, the economy's total production of goods and services, remains an “abstract number” for the average citizen. Ruble exchange rate is less of a symbol than before because most people can't travel and there are fewer imported goods to buy, said Kluge.
“What matters is inflation,” he said. “And this is an issue where the regime has actually made some preparations.”
The central bank combats price spikes by raising interest rates to 16%. The government has supported the Russian currency by requiring exporters to change foreign revenue from things like oil into rubles, which kept the prices of other imports low.
And a six-month ban on gasoline exports starting March 1 will help keep fuel prices low in Russia.
The government has also offered home mortgages at dramatically subsidized interest rates – a move that will boost people's sense of personal wealth but will ultimately leave the government with a hefty bill.
Kluge said the crucial factor was Russia's ability to hold on Export of oil and natural gas to new customers in Asia. As long as oil prices remain stable, Russia can maintain its high spending on military and social programs “indefinitely,” said Kluge.
According to the Kyiv School of Economics' Russian Oil Tracker, Russia earned around $15.6 billion in oil export revenue in January. That's about $500 million a day.
In the longer term, the economic outlook is less certain. A lack of foreign investment will limit new technologies and productivity. Government largesse may one day exceed the central bank's ability to control inflation. The extent to which the generous policy will continue after the election is up to Putin.
The main risk to today's stability is a sharp drop in oil prices, which are currently around $70 per barrel for the Russian Urals blend. Thanks in part to sanctions and boycotts, that's a discount from around $83 for the international benchmark Brent crude.
But for now, government finances are more solid than many expected.
“I don’t have good news” for people waiting for the Russian economy to collapse “tomorrow” because of sanctions, former Russian central bank official Alexandra Prokopenko wrote on X, formerly Twitter. “It is a large and resilient animal.”
___
McHugh reported from Frankfurt, Germany.
Comments are closed.