Gripped by heavy economic sanctions and increasingly isolated from Western suppliers, Russia worked Thursday to keep its factories and businesses afloat and prevent a return to Soviet-era scarcity.
As the central bank cut rates again in a bid to prop up the economy, its chairman, Elvira Nabiullina, warned that the coming months would be “difficult for businesses and citizens alike” as the impact on the Russian economy extends beyond three decades. months to increase. in the invasion of Ukraine.
Russia’s economic toll, while difficult to quantify, has spread widely, from the largest corporations to the small shops and workers.
Basic items, from paper to buttons, are scarce. Consumer goods prices have soared, with inflation rising to 17.8 percent last month before declining slightly. Sales in the lucrative energy sector, while still high, are expected to decline as European customers begin to turn away from Russian oil. Airlines, cut off from western manufacturers, are looking for spare parts.
Russian automaker Avtotor even announced a raffle for free 10-acre parcels – and the chance to buy seed potatoes – so workers could grow their own food amid “the difficult economic situation”. The company announced the vegetable farm giveaway after Western sanctions hampered production at its Kaliningrad assembly plant.
“I call what is happening now a horrific experiment,” Ivan Fedyakov, who runs Infoline, a market research firm in Russia, said in a telephone interview. “It has never happened in modern history that such a large and deeply integrated country has been so quickly and abruptly cut off from the global economy.”
Supply chain shortages and problems will only get worse, economists predict, as the West seeks to make Russia an economic pariah. It’s unclear what could reverse that tectonic shift, aside from major changes in Moscow, analysts say, including the end of President Vladimir V. Putin’s rule.
The central bank has cut interest rates faster than expected as the ruble has risen rapidly, hitting its four-year high against the US dollar this week. A strong ruble hurts exports and cuts government revenues from dollar-denominated energy sales.
But even the ruble’s rebound is a sign of weakness, economists say, as a result of a sanction-induced collapse in imports that, coupled with a continued surge in energy revenues, pushed the country’s current account soaring.
“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.”
Mr Putin, in tacit admission of the economic toll of the war, pledged this week to raise the minimum wage, pensions and military benefits, even as he shook off the mass exodus of foreign companies since the February 24 invasion.
“Sometimes you look at those who are leaving and you think, ‘Maybe thank God they are,'” Putin said at a televised meeting on Thursday. “Our companies and our manufacturers have matured and will successfully find a place on the site prepared by our partners. Nothing will change.”
Mr Putin also lashed out at Western governments freezing Russian assets, including yachts and bank accounts linked to his inner circle. “Stealing other people’s property never ends well, especially for those who do such bad things,” he said at the meeting, according to the Interfax news agency.
He dismissed the lack of luxury goods from European companies as a minor inconvenience. Such items will be “slightly more expensive,” he said, taking the example of high-end Mercedes-Benz cars but saying those who drove them before would continue to drive them. They can be imported from anywhere, he said. “We do not care.”
Despite the devil-may-care official stance, nearly 1,000 companies have left Russia, including Nike, Reebok, Starbucks and McDonalds, due in part to an untenable situation and logistical and payment difficulties.
Delivery routes Russia relies on to import materials for products as diverse as cars, tampons and ceramic plates have been blocked by European countries. DHL, UPS and FedEx have been refusing to make deliveries in Russia for months.
Companies such as Adobe and Oracle have suspended operations there and there are concerns that Russia will soon run out of storage space for data.
Nino, a jewelry designer in Moscow who refused to give her full name for fear of reprisals, said the clay she relied on had disappeared from the market because it is produced in Germany and Ukraine’s disputed eastern Donbas region. The cost of the clay, she said, has increased by 30 to 60 percent.
“My jewelry is produced by a Russian company,” she said. “They also struggle with a lack of materials. There are major problems with logistics. Either we don’t have what we need, or it’s significantly more expensive.”
Russia has avoided some economic pain, at least temporarily, as the European Union has been unable to allay Hungary’s objections to a proposed oil embargo, which would be one of the toughest measures yet by the West. imposed. But oil revenues are still expected to decline over time as individual countries reduce their reliance on Russian energy.
On the battlefield, Russia’s ambitions are limited to three cities in the Donbas region, where it has made significant gains and could soon gain full control. But with the unexpectedly rapid depletion of its troops and equipment, some analysts expect the battle to be Russia’s last major offensive of the war.
On Thursday, Russian troops shelled Kharkiv, Ukraine’s second-largest city, 40 miles from the Russian border, and resumed attacks weeks after Ukrainian forces drove Russian forces out of the city, giving it a brief respite.
War between Russia and Ukraine: important developments
Seven people were killed and 17 were injured when five neighborhoods came under fire from rocket-propelled grenade launchers and artillery, the head of Kharkiv’s regional military administration, Oleh Synyehubov, said.
“Many people returned to Kharkov thinking they were safe,” said a 28-year-old man in a bulletproof vest who gave his name only as Ilya. “But now they don’t feel that way anymore. I saw four families in my apartment building packing their cars to leave.”
One person was also killed and another injured in a nearby town. At least four civilians have been killed and 12 others injured in the Donetsk region in the past 24 hours, Ukraine’s defense ministry said Thursday.
As Ukraine wants to hold Russia responsible for atrocities, two Russian soldiers pleaded guilty Thursday to shelling a town in the Kharkov region from a position across the border into Russia. It was the second war crimes trial in Ukraine since the invasion began.
The soldiers, Aleksandr Bobikin and Aleksandr Ivanov, admitted to serving in an artillery unit that had shelled the village of Derhachi and destroyed a school from a position near the Russian border town of Belgorod. The soldiers then continued their attack as they entered Ukraine, where they were captured and charged with violating the laws and customs of war.
The charge is laid down in the Geneva Conventions, to which Ukraine is a party. Prosecutors said the men would have to serve 12 years in prison.
Mr Ivanov asked for leniency. “I repent and ask for a reduced sentence,” he said. The verdict is expected on May 31.
Russia’s Supreme Court postponed the hearing until June 29 to determine whether the Azov Battalion, a regiment of the Ukrainian National Guard that made up most of the fighters at the Azovstal steel plant in Mariupol, should be classified as a terrorist organization.
Originally a far-right group, the Azov Brigade in Russia lends credibility to Mr Putin’s claims that Russia is purging Ukraine of Nazis.
Reporting contributed by Valerie Hopkins† Anton Trojanovskic† Neil MacFarquhar† Ivan Nechepurenko and Matthew Mpoke Bigg†