News from Russia: Putin faces horror of economic collapse as sanctions devastate economy | World | News


Moscow has been reeling from a series of tough economic restrictions imposed by the West to punish Vladimir Putin for his decision to invade Ukraine. The sanctions have targeted key sectors of the economy, such as finance and the military-industrial complex. The measures angered the Russian leader, who claimed they amounted to a “declaration of war”.

Although the ruble has recovered somewhat since its disastrous fall in early March, Russian financial experts believe that the worst is yet to come and that the country will face long-term economic difficulties.

Internal estimates from the Russian Ministry of Finance predict that GDP will fall this year by 12%.

This is even worse than previous forecasts by the International Monetary Fund (IMF), which estimated that Russia would see an 8.5% decline in economic growth.

A 12% drop in GDP would effectively wipe out a decade of economic progress and be the most severe contraction since 1994, when Russia was transitioning from a command economy to a market economy under President Boris Yeltsin.

Elvira Nabiullina, the head of the Central Bank of Russia, believes that the effects of the sanctions on the economy will start to be felt more harshly towards the end of the third quarter of 2022.

In a speech to Russian lawmakers in late April, she said: “The period when the economy can live on reserves is over.

“And already in the second – at the beginning of the third quarter, we will enter a period of structural transformation and the search for new business models.”

The relative recovery of the Russian ruble against the dollar has led some Westerners to argue that the sanctions are having little effect.

The ruble traded at 136 to the dollar on March 10, but has since recovered to around 70.

The Russian president even bragged that the West’s economic blitzkrieg failed to cause an immediate economic implosion.

However, Sam Greene argued that the damage to Russia’s economy was “real” and that the longer-term damage would be “greater”.

The director of the Russian Institute at King’s College London said: “The Russian economy is NOT back on its feet. The ruble is back on its feet, yes.

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“But the ruble is not the economy – and the ruble has only recovered because it is backed by massive capital controls and $50.1 billion in reserves spent since the start of the crisis. war.

“The damage to the Russian economy is real, although it doesn’t immediately stop Muscovites from sitting in cafes.

“Putin has spent more than 20 years crafting sound fiscal and monetary policies.

“It will take more than two months to undo this. Venezuela was not built in a day.”

The professor added: “The long-term damage is even greater. And it’s not just about the lack of investment and the fact that Russian companies will have to work with below-average resources at inflated prices.

“According to Russia’s own border guards, 3.8 million people have left the country since the start of the war.

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“Now it’s as much about Putin as it is sanctions, but it’s a blow to productivity right now and growth potential going forward.”

He argued that Russia has softened the immediate impact of Western restrictions by outsourcing some of the short-term pain to Belarus and Kazakhstan – other members of the Eurasian Economic Union.

However, that would not spare Moscow from the economic pain that lay ahead.

Mr Greene said: “If we are honest, we have to recognize that these sanctions were meant to cause significant pain in the medium to long term, and they do.

“Calling them a failure because Muscovites can always go out for coffee is just stupid.”

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