Economists predict that Russia’s economic resilience will face a significant challenge this year due to the sanctions imposed upon the country. They also suggest that if the West intensifies these sanctions and makes life in Russia more difficult, there is a possibility of Vladimir Putin losing the support of the people.
According to two Yale researchers, Jeffrey Sonnenfeld and Steven Tian, Russia has successfully navigated the consequences of Western sanctions thus far. However, they believe that the upcoming November US presidential election could potentially be a turning point for the nation. Sonnenfeld and Tian argue that if President Joe Biden is re-elected, the West is likely to continue offering support to Ukraine while simultaneously imposing stricter sanctions on Russia.
As the president drags the nation into its third year of war, experts believe that increased economic pressure could lead Russians to become more resistant to Putin’s leadership. This comes after a long period of complacency among the population.
“People are currently leading normal lives, but this approach is completely unsustainable. The underlying factors that drive economic growth are deteriorating right in front of us,” Tian explained to Business Insider. “If Trump is not re-elected, all of these issues will become more apparent. It will be like a house of cards collapsing.”
Sergei Guriev, an esteemed Russian economist and the future Dean of the London Business School, shares the concern that social unrest may be looming over Moscow. He points out that the current state of Russia’s economy bears striking similarities to the final years of the Soviet Union, when crucial government support suddenly diminished. This abrupt decline had severe repercussions, plunging certain sectors, including manufacturing, into a profound recession.
Putin’s economic fantasy
Contrary to what Russia is portraying, Sonnenfeld, Tian, and Guriev anticipate a downturn in the economy. Despite the country’s reported economic growth of 3.6% in 2023, as per Russia’s federal statistics service, there is a growing concern among the population. In fact, a staggering 56% of Russians, according to a 2023 poll, hold the belief that the economy is indeed improving.
According to Sonnenfeld, polls and economic statistics from Russia are not only misleading but also go beyond that. He has previously argued that Russia’s growth figures are simply products of “Putin’s imagination,” as the Kremlin selectively chooses favorable statistics while concealing more alarming data points from the public.
According to him, Russian polling lacks objectivity and security, leading to a lack of confidence in its results. He further stated that it is merely a tool for propaganda.
According to Guriev, Putin’s claim of Russia becoming the new growth hub of the world is likely to be untrue.
According to the expert, Putin does not hold the belief that Russia is performing exceptionally well. He acknowledges the limitations of the statistical data, but it is crucial for him to persuade the Russian population that everything is in good shape. As a dictator, this is part of his responsibility – to disseminate this message.
Russia’s financial situation is painted in a gloomy light when considering other economic indicators. For instance, the country experienced a significant exodus of 1 million citizens, equivalent to 15% of its millionaires, in addition to a staggering $19 billion decline in foreign direct investment in 2022 alone. Although Moscow’s economy has been sustained by substantial military expenditures, this support is anticipated to diminish in the near future. European researchers foresee a more sluggish growth path for Russia leading up to 2024.
According to Sonnenfeld, these statistics indicate that the Ukraine war is causing significant damage to the country’s economy, regardless of Putin’s claims about its resilience against sanctions.
According to Sonnenfeld and Tian, the reelection of Biden and the implementation of stricter sanctions could serve as a wake-up call for Russian citizens. They suggest that if the West were to expand its sanctions beyond the oil trade and target Russian steel, copper, and other metal commodities, which contribute about 20% of the nation’s total revenue, it could deal a potentially devastating blow to Russia’s economy.
Living standards in Russia are currently experiencing a decline, with civilian infrastructure deteriorating as a result. Part of the reason for this breakdown is Russia’s excessive expenditure on its ongoing war efforts. Furthermore, the country’s inflation rate is high, standing at 7.58% as reported by Russia’s economic ministry.
“When the people of Russia come to the realization that Putin’s pledge for victory will not unfold as promised, it will undoubtedly lead to widespread unrest. This will be particularly evident when they understand that there is no feasible pathway to victory concerning the situation in Ukraine.”
According to Guriev, he does not anticipate a complete collapse of Russia’s economy. He is confident that central bankers will exert considerable effort to mitigate the negative effects. However, he does acknowledge that inflation and limited growth will pose significant challenges for Moscow. As a result, he expects a difficult process of economic restructuring to take place.
“It is highly improbable that the Russian economy will undergo a macroeconomic collapse, along with the political system,” he expressed. “For this conflict to come to an end, a crucial requirement is the alteration of the political regime, specifically the departure of Mr. Putin.”
Some economists contend that Russia is currently in a precarious situation where it cannot afford to either win or lose its war. They argue that the country’s economy is too reliant on military spending to sustain itself independently.