The bleak future for the Russian economy is gradually revealed

After sanctions hampered production at Avtotor’s plant in Kaliningrad, the Russian automaker decided to launch a free lottery program to win 4-hectare plots of land with the opportunity to buy seed potatoes to multiply. members can grow their own food in “difficult economic situations”.

In Moscow, shoppers also complained that a kilogram of bananas had increased to 100 rubles from 60 rubles before. While in Irkutsk – an industrial city in Siberia – the price of tampons at a store has doubled, to $7. Banks have shortened receipts in response to a shortage of paperwork; and clothing manufacturers say they’re running out of buttons…

“Russia’s economic outlook is particularly bleak,” the Bank of Finland said in a recent analysis. According to the unit, by initiating a military conflict with Ukraine, Russia has chosen the path of becoming poorer and less economically influential.

Russia’s central bank predicts an inflation rate of between 18% and 23% this year and a decline in total output of up to 10%.

However, President Vladimir V. Putin insists that the economy is bypassing the sanctions of the US, Europe and others. The financial moves taken by Moscow helped alleviate the initial economic damage. At the start of the conflict, the country’s central bank doubled interest rates to 19% to stabilize the currency, before lowering it to 14%. The ruble is trading at its highest level in more than two years.

And although Russia has had to sell its oil at a discount, the dizzying rise in global prices is helping oil revenue to soar to $180 billion this year despite the production cuts, according to Rystad Energy. Natural gas supplies will also add $80 billion to Moscow’s coffers.

So far, there is little indication that foreign pressure will cause Putin to change his campaign in Ukraine. But the lottery hit Avtotor’s vegetable land, along with the commodity shortages and price hikes faced by residents, are signs of the predicament surrounding some Russian businesses and workers.

Analysts say that fractured relations with many of the world’s largest trading partners and technology powers will cause profound and lasting damage to the Russian economy. “Really difficult times for the Russian economy are still ahead,” said Laura Solanko, senior adviser at the Bank of Finland’s Institute for Emerging Economies.

According to Ms. Solanko, the amount of supplies and spare parts to maintain the business will run out in the next few months. At the same time, the lack of sophisticated technology and investment from abroad will hinder Russia’s production capacity in the future. The Bank of Russia acknowledged that, with consumer and lending demand declining, “enterprises are facing significant difficulties in production and logistics”.

Ivan Khokhlov, Co-Founder of 12Storeez, a clothing brand with 1,000 employees and 46 stores, is facing this problem. “With each new wave of sanctions, it becomes harder and harder to keep production on schedule,” he said. The company’s bank accounts in Europe remain frozen because of sanctions, while logistical disruptions have forced him to raise prices.

“We faced delays, disruptions and price increases. When our logistics with Europe broke down, we depended more on China, which also has its own difficulties,” Ivan said.

According to statistics from the Yale School of Management, hundreds of foreign companies have stopped operating or completely withdrawn from Russia. The “migration” continues this week with McDonald’s. After three decades, they planned to sell their 850-restaurant business, which employs 62,000 Russians.

French carmaker Renault also announced an agreement with the Russian government to leave the country earlier this week. Paper company Stora Enso (Finland) said it is divesting capital from three packaging factories in Russia.

Deeper damage to the structure of the Russian economy is likely to mount in the coming years, even in the money-making energy sector.. Europe’s turn away from Russian oil and gas will force Moscow to look for more customers, especially in China and India.

But the pivot to Asia will take time and massive investments in infrastructure that in the medium term will see Russian output and revenue plummet, according to Daria Melnik, Rystad Senior Analyst Energy.

Without enough storage, Russia may have to cut its overall oil and gas production. However, boreholes are not like faucets that are easy to turn on and off. When the drill cover is closed, there is a probability that it will never be restarted. “Some of Russia’s spare capacity will be destroyed,” Melnik said.

Russian Finance Minister Anton Siluanov said that sanctions could reduce oil production by 17% this year. But some other sectors fell even more sharply. Passenger car production fell 72% in March compared with the same period in 2021.

In the industrial sector – which includes chemicals, oil, gas and manufacturing – the average four-week import volume is down 88% from early February, according to supply chain tracker FourKites. Consumption-related import volumes fell by 76%, making it difficult for Russians to buy tampons and mobile phones. Hospitals have limited spare parts and supplies for dialysis machines and ventilators.

In a survey of healthcare professionals in April, 60% of respondents said they had experienced a shortage. Among imported products, the items most lacking include gloves, catheters and disposable suture materials. On Twitter, the account is called “But What Happened?” with nearly 44,000 followers lamenting price increases for everything from Palmolive shampoo to nectarines.

Outside the country, Russia’s economic prospects are also shrinking. Earlier this month, the operator of nuclear power plants Fennovoima (Finland) abruptly announced it would terminate the contract to build a plant in the northern city of Hanhikivi with Rosatom – the State Nuclear Energy Corporation. Russia.

“We are extremely disappointed. We are completely unable to explain the reasoning behind this decision,” Rosatom said in a statement.

Session An (according to NYT)