LONDON — After sanctions hampered production at its Kaliningrad assembly plant, Russian automaker Avtotor announced a raffle for free 10-acre parcels — and the chance to buy seed potatoes — so workers could grow their own food in the westernmost fringe of the country. the Russian Empire during ‘the difficult economic situation’.
In Moscow, shoppers complained that a kilogram of bananas had risen from 60 to 100 rubles, while in Irkutsk, an industrial city in Siberia, the price of tampons in a store doubled to $7.
Banks have cut coupons in response to a paper shortage. Clothing manufacturers said they were running out of buttons.
“The economic outlook for Russia is very bleak,” the Bank of Finland said in an analysis this month. “By starting a brutal war against Ukraine, Russia has chosen to become much poorer and less influential economically.”
Even the Central Bank of Russia has forecast staggering inflation between 18 and 23 percent this year and a decline in total output of as much as 10 percent.
It is not easy to figure out the impact of the war and sanctions on the Russian economy at a time when even the use of the words “war” and “invasion” is illegal. President Vladimir V. Putin has insisted that the economy withstand the measures imposed by the United States, Europe and others.
Moscow’s financial maneuvers initially helped to mitigate the economic damage. At the start of the conflict, the central bank doubled interest rates to 19 percent to stabilize the currency, and was recently able to cut interest rates to 14 percent. The ruble is at its highest level in more than two years.
And while Russia has had to sell oil at a discount, staggering increases in world prices are pushing oil tax revenues to exceed $180 billion this year, despite production cuts, Rystad Energy said. Natural gas supplies will add another $80 billion to Moscow’s treasury.
In any case, Mr Putin has shown little sign that foreign pressure will push him to scale back military strikes against Ukraine.
Still, Avtotor’s vegetable garden lottery and what it says about the vulnerabilities facing the Russian people, along with shortages and price hikes, are signs of the economic distress that has gripped some Russian companies and workers since the war started nearly three months ago.
Analysts say the split with many of the world’s largest trading partners and technology powerhouses will cause deep and lasting damage to the Russian economy.
“The really difficult times for the Russian economy are ahead of us,” said Laura Solanko, senior adviser at the Bank of Finland Institute for Emerging Economies.
The stocks of supplies and spare parts that keep businesses running will run out in a few months, Ms. Solanko said. At the same time, a lack of advanced technology and foreign investment will hamper Russia’s future production capacity.
The Russian Central Bank has already acknowledged that consumer demand and credit are on a downward spiral and that “businesses are experiencing significant difficulties in manufacturing and logistics.”
Ivan Khokhlov, co-founder of 12Storeez, a clothing brand that evolved from a showroom in his Yekaterinburg apartment to a large company with 1,000 employees and 46 stores, grapples with the problem firsthand.
“With each new wave of sanctions, it becomes more difficult to produce our product on time,” said Mr Khokhlov. Shortly after the invasion, the company’s bank account in Europe was still blocked due to sanctions, while logistical glitches had forced it into price increases.
“We are dealing with delays, disruptions and price increases,” he said. “As logistics with Europe are destroyed, we rely more on China, which also has its own problems.”
According to a Yale School of Management accounting, hundreds of foreign companies have already ceased operations in Russia or have withdrawn completely from Russia. And the exodus of companies continued this week with McDonald’s. The company said it plans to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia after three decades.
“I passed the very first McDonald’s that opened in Russia in the 1990s,” Artem Komolyatov, a 31-year-old tech in Moscow, said recently. “Now it is completely empty. Only. The sign is still hanging. But inside it’s all blocked. It is completely dead.”
Nearby, two police officers in bulletproof vests and automatic rifles stood guard, he said, ready to deter protesters.
At the Leningradsky train station, at one of the few franchises that remained open Monday, customers queued for over an hour for a last taste of McDonald’s burgers and fries.
French carmaker Renault also announced a deal with the Russian government to leave the country on Monday, though it includes an option to buy back its stake within six years. And Finnish paper company Stora Enso said it was divesting three corrugated packaging plants in Russia.
Greater damage to the structure of the Russian economy is likely to increase in the coming years, even in the money-making energy sector.
The war between Russia and Ukraine and the world economy
A far-reaching conflict. The Russian invasion of Ukraine has had a ripple effect around the world, adding to the stock market woes. The conflict has caused staggering spikes in gas prices and product shortages, prompting Europe to reconsider its reliance on Russian energy resources.
Europe’s promise to eventually turn its back on Russian oil and gas will force Moscow to look further afield for customers, particularly in China and India. But the pivot to Asia, said Daria Melnik, a senior analyst at Rystad Energy, “will take time and massive investment in infrastructure that, in the medium term, will rapidly plummet Russian production and revenues.”
Without sufficient storage capacity, Russia may have to reduce its overall oil and gas production. Wells are not like faucets though, easy to turn on and off. Cap one, and most likely it can never be used again.
“Some of Russia’s spare capacity will be destroyed,” Ms Melnik said of the country’s oil flow.
Anton Siluanov, Russia’s finance minister, said sanctions could cause oil production to fall by as much as 17 percent this year.
Larger shifts are visible in other sectors. Passenger car production fell 72 percent in March compared to the previous year.
In the industrial sector, which includes chemicals, oil, gas and manufacturing, the four-week average of import volume is down 88 percent compared to early February, before the invasion, according to FourKites, which tracks supply chains. The volume of consumer-related imports has fallen 76 percent, making it difficult for Russians to buy tampons and cell phones, and for hospitals to get replacement parts and supplies for dialysis machines and ventilators.
In a survey of healthcare professionals in April, 60 percent of respondents said they had already experienced shortages. Of the imported products, the most missing items were disposable gloves, catheters and sutures.
For consumers, price increases for basic goods are so noticeable that a Twitter account mocking social media posts have appeared in which Russians complain about price hikes for everything from Palmolive shampoo to nectarines. It’s called But what happened? and has nearly 44,000 followers.
A 26-year-old Moscow resident, who asked not to use her name for fear of reprisals, said the cost of imported fruits, such as the bananas she puts in her oatmeal every morning, has skyrocketed.
“It’s the product I buy every time I go to the store, so I noticed it right away,” she said. Her total grocery bill has increased by about a third, she said.
In Irkutsk, the price of a $3.50 box of tampons doubled within weeks of the war’s start, a 23-year-old designer who earns $450 a month said and asked not to be named. “I could buy a basket of good groceries or a new T-shirt for the same money,” she said, comparing pre-war prices.
Outside the country, Russia’s economic prospects are also shrinking. Earlier this month, Fennovoima, a Finnish company that operates nuclear power plants, abruptly announced that it was canceling its contract to build a plant in the northern city of Hanhikivi with Russia’s state nuclear energy company Rosatom. Mr Putin signed the law establishing the company.
“We are extremely disappointed,” Rosatom, who owns a third of the project through a Finnish subsidiary, said in a statement: “The reasons behind this decision are completely inexplicable to us.”
Ivan Nechepurenko contributed reporting.