Study shows sanctions are crippling Russia’s economy

Sanctions on Russia are taking a heavy toll on the economy, despite Moscow’s assertion that the country is not feeling the pinch, according to a new study from Yale University.

The authors claim their work casts doubt on Moscow’s assertions that the economy remains robust and that the West is suffering more through “a war of economic attrition”.

What does the study say?

Yale’s team of experts used consumer data and figures from Russia’s international trade and shipping partners to measure economic activity five months after Moscow launched its invasion of Ukraine.

They found Russia’s position as a commodities exporter had been irreversibly eroded, having been forced to switch from its main markets in Europe toward Asia.

The study said Russian imports have largely collapsed since the war began, and the country is facing stark challenges securing crucial inputs, parts and technology.

“Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent,” the team found.

“The hollowing out of Russia’s domestic innovation and production base has led to soaring prices and consumer angst,” they added.

With the exodus of about 1 000 global companies, Russia has lost ties that represent about 40% of the gross domestic product.

The report said President Vladimir Putin was resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over structural economic weaknesses.

It added the Russian government budget had gone into deficit for the first time and the Kremlin’s finances are “in much, much more dire straits than conventionally understood”.

Meanwhile, the authors said Russian financial markets — with an eye on future outlook — were the worst performing in the world, limiting capacity to tap into new investment to revitalise the economy.

‘Cherry-picked’ statistics

“Since the invasion, the Kremlin’s economic releases have become increasingly cherry-picked, selectively tossing out unfavourable metrics while releasing only those that are more favourable,” the study said.

“These Putin-selected statistics are then carelessly trumpeted across media and used by reams of well-meaning but careless experts in building out forecasts which are excessively, unrealistically favourable to the Kremlin.”

New figures for Russian industrial production for June show it was significantly depressed across a range of sectors compared with last year.

For cars, production was down by 89%, while for fibre-optic cables it dropped by almost 80%.

What’s next for the Russian economy?

The authors of the Yale study said Russia had no path out of “economic oblivion”, provided that Western allies stayed unified on sanctions.

“Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual — the facts are that, by any metric and on any level, the Russian economy is reeling, and now is not the time to step on the brakes,” it said.

A separate study by the German Institute for International and Security Affairs published in June also suggested the Russian economy was in trouble, despite initially having held up well in the face of sanctions.

“The sanctions’ effects are only just beginning to unfold – supply-chain problems are intensifying and demand is falling quickly.

“In the longer run, Russia’s economy will become more primitive as it partially decouples from international trade,” it said.

“To avoid social tensions, the government will intervene to support Russian businesses, leading to more protectionism and a larger state footprint in the economy.”

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Deutsche Welle
Deutsche Welle is Germany’s international broadcaster. They convey a comprehensive image of Germany, report events and developments, incorporate German and other perspectives in a journalistically independent manner. By doing so they promote understanding between cultures and peoples as well as access to the German language.

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