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Meltdown averted but six months on, Russians face economic pain

Moscow, Russia

Russia’s economy has avoided the meltdown many predicted after Moscow sent its forces into Ukraine six months ago, with higher prices for its oil exports cushioning the impact of Western sanctions, but hardships are emerging for some Russians. 

After predicting at one point that the economy would shrink more than 12 per cent this year, exceeding the falls in output seen after the Soviet Union collapsed and during the 1998 financial crisis, the economy ministry now expects a 4.2 per cent contraction. 

Russia Izhevsk vegetable sellers

Vendors sell vegetables and other foodstuffs in a street in Izhevsk, Russia, on 19th August. PICTURE: Reuters/Alexey Malgavko

High global energy prices have helped the Kremlin follow through on President Vladimir Putin’s pledge in March to reduce poverty and inequality despite crippling Western sanctions and inflation. Some economists have compared the situation to the COVID-19 pandemic, when authorities increased payments for those most vulnerable to the crisis.

“So far, there are no signs that the drop in living standards could lead to unrest,” said Alexei Firsov, founder of social studies think tank Platforma.

“The living standards decline has not reached the point where attitudes towards reality start to change significantly and the fridge clearly begins to beat the TV” – a reference to a Russian saying that describes the tension between people’s experiences and what state television has led them to expect.

Russia’s current account surplus – the difference in value between exports and imports – more than tripled year-on-year in the first seven months of 2022, to a record $US166.6 billion, as revenues soared while sanctions caused imports to plunge.

Putin has ordered 10 per cent rises in pensions and the minimum wage to soften the blow from inflation, while major employers such as number one lender Sberbank and gas giant Gazprom raised salaries from July.

The unemployment rate was 3.9 per cent in June, its lowest since the statistics service started publishing the figure in 1992, according to the Eikon database.

Putin’s approval rating was 83 per cent in July, up more than 10 percentage points since the Ukraine campaign started on 24th February, according to polling by the independent Levada Centre. 

Cost of living
Inflation, which soared to a 20-year high of 17.8 per cent in April after the rouble collapsed to a record low against the US dollar, is now seen ending the year at 13.4 per cent, according to the economy ministry. 

Emergency capital controls have since helped the rouble firm more than 25 per cent this year, making it the world’s best-performing currency so far in 2022. That has helped rein in inflation and stopped the panic-buying seen after sanctions were imposed by Western countries.

While sanctions mean consumer goods like Guinness beer, Zara clothes and Nespresso coffee capsules have disappeared from the shelves, some Russians told Reuters they were also struggling to find staple goods including some medicines.

Some complained about a shortage of car parts as many Western manufacturers have either suspended operations or left Russia entirely. Russia’s biggest carmaker Avtovaz has cut production and is offering some workers voluntary redundancy due to lack of components.

“I, as a retired person, cannot afford what is on offer. Prices for the products I buy have jumped by 30 per cent on average,” said Larisa, a 65-year-old pensioner from Belgorod, a city near the Ukrainian border.

Russia Izhevsk street market

Vendors sell vegetables and other foodstuffs in a street in Izhevsk, Russia, on 19th August. PICTURE: Reuters/Alexey Malgavko

Official figures show consumer prices have gone up 10.7 per cent so far this year, compared with a 4.7 per cent increase in the same period of 2021.

But according to statistics service Rosstat, prices for sanitary pads have risen 41 per cent year-to-date, those for foreign-made cars are up 39 per cent, and toilet paper prices are up 27 per cent.

“I’ve started to spend more, but I’ve also started to save more,” said Tatiana Lazar, a 33-year-old confectioner and mother of two from Moscow. “Now I limit my desires, my wants in shops and in the standard of living. I don’t really believe that prices will go down.”

Putin has promised for years to raise real disposable incomes, a measure of people’s purchasing power, but a survey by state polling agency VTsIOM showed that 64 per cent of people in Russia had no savings as of mid-February.

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Online project, which tracks consumer goods prices, warned living standards could yet fall further, saying: “The economy has collapsed and shortages of even basic products are on the way.”

But for many Russians, the last six months have seen little change: they still holiday abroad, buy Western goods, complain about inflation, watch TV and support Putin.

And with energy prices set to remain high even as European Union countries try to wean themselves offRussian gas and oil, state coffers should continue to swell.Russia has said it plans to reinstate its policy of topping up reserves with excess oil revenues.

“People relax, go to eat, go out, spend money just as they did before,” said Emil, 33, who lives in Moscow.

“I think everything has normalised, more or less, given how they [the West] wanted us to live…I don’t think it’ll be us having the cold winter.”



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