What the new car produced in Russia says about the future of the country’s economy

“It is the most affordable new vehicle in Russia. They call it… the anti-sanctions car!”

With that sentence, Russian state television introduced the new, not-so-improved Lada as it rolled out of the factory in the city of Tolyatti, some 1,000 kilometers southeast of Moscow.

“More affordable” may be its only strong point. Due to Western sanctions, the Russian car manufacturer cannot import all components that he used to buy abroad.

Thus, the Lada Granta “anti-sanctions” has no airbag, no anti-lock braking system, no stability control or seat belt pretensioners.

Almost four months after the invasion of Ukraine, the new Lada sums up the Russian economy: Still works, despite missing some parts.

The fact that it still works is an achievement, with Russia being the most sanctioned country in the world today.

According to the Statista data service, more than 10,500 restrictions were imposed on Russian individuals and companies, of which more than 7,500 were implemented in the last four months.

No wonder some experts have been predicting that by now the wheels of the Russian economy would have completely fallen apart.

“The scale of international sanctions would have caused economic collapse if they had come out of nowhere,” says Chris Weafer of Macro Advisory in Moscow.

“But Russia has experienced sanctions incrementally since 2014. There has been a huge increase, but it is something that it has already been dealing with,” he adds.

“In addition, the fear of supply disruption means that Russia has been making even more money exporting energy and raw materials. In the first five months of the year, its current account surplus was record: US$110 billion. You can use that money not only to finance the military, but also to subsidize state industries and ensure unemployment doesn’t rise or incomes don’t fall too low,” he notes.

cushioned damage

Capital controls helped strengthen the ruble and inflation began to decline. But a deep recession is looming. In 2022, the Russian economy is expected to contract by up to 10%.

Russian consumers have not yet felt the full effects. Supermarket shelves in Moscow are still quite full, although some imported items they are no longer available.

It is in the commercial centers of Moscow where the change is most evident. Once bustling places, now they are much quieter: fewer customers, fewer options.

In protest of the invasion of Ukraine, many foreign brands have suspended their operations in Russia or have withdrawn altogether. Many stores are closed.

Behavior change

On the street I meet a taxi driver named Nikita. He predicts a rough road ahead for the minicab company he works for.

“Taxis get old very fast, so a taxi company must change them very frequently”, he explains to me.

“After the war began, car prices in rubles became ridiculously high. Therefore, our taxi company will not see new cars in the near future. We will have to use the old ones.”

Could the “anti-sanctions car” be a solution? Well, Nikita does not rush to buy one.

“Even with an airbag, the Lada Granta is very small and uncomfortable,” he says.

Could economic difficulties at home give the Kremlin pause for thought? Could they speed up the end of Russia’s offensive in Ukraine? Are the sanctions working?

“If the goal is to force behavior change by creating an economic and financial crisis, so the answer is noWeafer believes.

“Russia has not experienced a crisis. But it is entering a period of economic wear and tear. For fall and (boreal) winter, you are faced with a harsher reality. In particular, once the European ban on importing Russian oil and oil products comes into force, and the government must reduce spending. Russia will inevitably have two or three years of a stagnant economy. The question is whether that will last 10 years,” says the Macro Advisory analyst.

“Russia is insulated from many imports of Western technology that just can’t replace. China made it clear that it is not going to supply Russia with sanctioned technology, because it itself may face secondary sanctions,” she adds.

“There is no reason to assume that Russia’s economy will not be able to function. But it will do so with a much lower level of technology and efficiency. The gap with the rest of the world will get bigger. Russia’s economy will be left behind,” concludes Weafer. (YO)