Economists predict that Russia’s economic resilience will face challenges this year due to sanctions. They also suggest that if the West intensifies sanctions, making life in the country more difficult, Vladimir Putin could potentially lose the support of the people.
According to two Yale researchers, Jeffrey Sonnenfeld and Steven Tian, Russia has managed to withstand the effects of Western sanctions thus far. However, they believe that the upcoming November US presidential election could be a turning point for the nation. If President Joe Biden is re-elected, the West is expected to continue supporting Ukraine while imposing stricter sanctions on Russia.
Russian experts believe that increased economic pressure could lead to a greater resistance among the Russian population against Putin’s leadership. This comes after a prolonged period of complacency, as the president continues to involve the nation in its third year of war.
“People are currently leading ordinary lives, but this approach is not sustainable in the long run. The core factors that drive economic growth are visibly weakening,” Tian explained to Business Insider. “If Trump is not re-elected, all of these issues will come to light, and the entire system will collapse like a house of cards.”
According to Sergei Guriev, an esteemed Russian economist and the future Dean of the London Business School, there is a growing concern that social unrest may soon hit Moscow. Guriev points out that Russia’s current economic situation bears striking similarities to the late Soviet Union era, where a decline in government assistance led to a severe economic downturn, particularly affecting sectors such as manufacturing. This potential scenario could plunge the economy into a deep recession.
Putin’s economic fantasy
According to the data from Russia’s federal statistics service, the nation’s economy experienced a growth of 3.6% in 2023. This seems contradictory to the predictions made by Sonnenfeld, Tian, and Guriev, who anticipate a tailspin. Interestingly, a 2023 poll revealed that a record 56% of Russians believe that the economy is improving.
According to Sonnenfeld, the polls and economic statistics from Russia are more than just misleading. He has previously argued that the country’s growth figures are simply products of Putin’s imagination. The Kremlin selectively chooses favorable statistics while hiding the more concerning data from the public.
“It is fully propaganda,” he added, expressing his lack of confidence in the objectivity and security of Russian polling.
According to Guriev, Putin’s assertion that Russia is poised to become the next global growth hub is likely to be false.
According to the expert, Putin acknowledges the shortcomings in Russia’s performance despite the misleading statistics. However, his role as a dictator compels him to present a positive image and convince the Russian population that everything is going well.
Russia’s financial situation is painted in a rather bleak light when we consider other economic indicators. In 2022, a staggering 1 million citizens have left the country, accounting for 15% of its millionaires. Moreover, the nation has experienced a significant decline in foreign direct investment, with $19 billion fleeing from Russia. Although the economy has been sustained by substantial military spending, experts predict that this trend is unlikely to continue, and Russia may face a more sluggish growth trajectory leading up to 2024.
According to Sonnenfeld, the statistics indicate that the Ukraine war is causing significant harm to the country’s economy, despite Putin’s claims of resilience against sanctions. This situation can be described as the economy being “cannibalized” by the ongoing conflict.
According to Sonnenfeld and Tian, Biden’s reelection and the implementation of stricter sanctions could serve as a wake-up call for Russian citizens. They believe that if the West were to expand its sanctions beyond the oil trade and target Russian steel, copper, and other metal commodities, it could deal a severe blow to the country’s economy. These commodities make up approximately 20% of Russia’s total revenue.
Living standards in Russia are already experiencing a decline. The civilian infrastructure is deteriorating, partly due to Russia’s excessive spending on its war efforts. Additionally, Russian inflation is soaring at a rate of 7.58%, as reported by data from Russia’s economic ministry.
“People in Russia will experience significant unrest when they come to the realization that Putin’s promised path to victory will not unfold as he has been promising. This will become evident when they understand that there is no viable strategy for achieving victory in Ukraine.”
Guriev is confident that Russia’s economy will not completely collapse, as central bankers will make significant efforts to minimize the negative impact. However, Moscow will face significant challenges with inflation and limited growth, which will necessitate a difficult process of economic restructuring.
According to him, it is highly unlikely that the Russian economy will experience a macroeconomic meltdown, and the same goes for the Russian political system. He emphasized that for this war to come to an end, there needs to be a change in the political regime, specifically the departure of Mr. Putin.
Some economists have made the case that Russia is currently in a predicament where it cannot afford either victory or defeat in its war. They argue that the country’s economy is heavily reliant on military spending and cannot sustain itself without it.
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