Russian economy is a strength, but feel the hardships

The sanctions hit the Russian economy hard. The ruble plummets, foreign companies flee and high prices are expected. The usual products could disappear from stores and middle-class achievements such as vacations abroad are in doubt.

Beyond the short-term hardship, the economic stagnation that began long before the invasion of Ukraine.

But total collapse is unlikely, say several economists. Russia has built “an economy that is armed for conflict”said Richard Connolly, an expert on the Russian economy at the Royal United Services Institute British.

The Russian government’s involvement in the economy and the money it continues to raise from oil and gas exports – despite US and UK bans – will help mitigate the blow to many workers, retirees and public employees in a country that has suffered three serious financial crises in the last three decades.

And as economists point out, Irana much smaller and less diversified economy, has endured years of hardship due to sanctions over its nuclear program without total collapse.

With everything, the Russian currency has suffered a spectacular fall that will raise the prices of imported products when inflation is already at 9%. On February 23, on the eve of the invasion, one dollar cost 80 rubles. On Thursday it was at 119 despite the Russian central bank raising the exchange rate to 20% among other drastic measures to stop the slide.

Although the sanctions have frozen a large part of foreign currency reserves, fiscal finances are in good shape, with low indebtedness. When the government needs loans, most of its creditors are domestic banks, not foreign investors who might abandon it in the midst of a crisis. The government announced this week that it will support large companies considered crucial to the economy.

Estimates of the short-term impact on economic growth vary widely because there could be more sanctions and the consequences of the war launched by President Vladimir Putin are uncertain.

“The Russians will be much poorer, they will not have money for vacations in Turkey or to send their children to schools in the West, and even if they can do it they will not be welcome because of Putin”said Tim Ash, emerging markets analyst at BlueBay Asset Management.

He forecasts a drop in economic growth of 10%, while for other economists it will be just 2% or some intermediate level.