Sanctions weigh heavily on Russian economy
Russia’s economy has been deeply damaged by sanctions and the outflow of international trade since the country invaded Ukraine, according to a new report by business experts and economists at Yale University.
Even though Moscow may have reaped billions of dollars from continued energy sales at high prices, largely unpublished data shows that much of its domestic economic activity has stalled since the Feb. 24 invasion, according to the report published at the end of July.
“The conclusions of our comprehensive economic analysis of Russia are powerful and indisputable: not only have sanctions and corporate retreats worked, they have completely crippled the Russian economy at every level,” the Yale School report says. of Management.
“Russian domestic production has come to a complete halt and lacks the capacity to replace lost businesses, products and talent,” the 118-page report said.
The report was produced by Jeffrey Sonnenfeld, president of the Yale Chief Executive Leadership Institute, and other members of the institute, a mix of economists and business management experts.
With Moscow halting or reducing the release of official economic statistics, including crucial trade figures, Sonnenfeld’s group tapped into data held by Russian companies, banks, consultants, business partners and others to draw up a chart of Russian economic performance.
They also said they had obtained unpublished data from experts on the Russian economy and data in other languages that supported their conclusions.
Even though Russia is able to earn more foreign currency on gas and oil exports, this has not offset the impact of Western sanctions.
And, they argue, the country’s reliance on Europe to buy 83% of its energy exports puts it under greater threat in the medium term.
“Russia is much more dependent on Europe than Europe is on Russia,” they said.
Russia largely survived Western economic sanctions after Moscow seized Ukraine’s Crimea region in 2014.
President Vladimir Putin pushed a program of replacing some imports with domestic products and built up a cushion of financial reserves.
But the country’s industry remained strongly driven by foreign capital investment and the import of high-tech inputs that Russia did not master, such as semiconductors.
The barrage of tougher sanctions after the invasion targeted both of these vulnerabilities, the report said.
Some 1,000 foreign companies have halted operations in the country, which could impact up to five million jobs, according to the report.
Industrial production plunged, and Russian retail sales and consumer spending fell at an annual rate of 15-20%.
Imports plunged across the board, according to the report; crucial imports from China fell by more than half.
A key example of Russia’s problems, according to the report, is the automotive sector.
Car sales fell from 100,000 per month to 27,000 per month, and production stagnated due to a lack of parts and machinery.
Without access to imported components, Russian producers are releasing cars without airbags or modern anti-lock brakes, and only with manual transmissions.
The report challenged the belief that Russia’s economy survives on the tens of billions of dollars the country rakes in each month from oil and gas exports.
Last week, the IMF said Russia’s economy, although contracting, was doing better than expected due to its energy and commodity export earnings.
The Yale report says data indicates that energy revenues have fallen over the past three months.
If Western Europe succeeds in cutting itself off from Russian natural gas, Moscow faces an “unsolvable” situation with a lack of market for its production, according to the report.
“Any decline in oil and gas revenues or oil and gas export volumes would immediately put a strain on the Kremlin’s budget,” he said.