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Russia’s economic resilience in the face of sanctions will be challenged this year, economists say, and they predict that Vladimir Putin could lose the support of the people if the West ramps up sanctions and makes life in the country more difficult.
Russia has so far weathered the impact of Western sanctions, but the nation could see a turning point at the November US presidential election, according to Jeffrey Sonnenfeld and Steven Tian, two Yale researchers who think the West is likely to keep providing support for Ukraine while tightening sanctions on Russia if President Joe Biden gets re-elected.
More economic pressure could make Russians more resistant to Putin’s leadership, they said, after a long period of complacency as the president drags the nation into its third year of war.
“People are living regular lives for now, but it’s a completely unsustainable strategy, and the fundamental growth drivers underpinning that economy are deteriorating in front of our eyes,” Tian told Business Insider. “And if Trump’s not elected, then all of that will rise to the surface … The house of cards [will come] crashing down.”
Sergei Guriev, a Russian economist and the incoming Dean of the London Business School, also thinks social unrest could be coming for Moscow. Russia’s economy is mirroring its late Soviet Union days, he said, right before intense economic support from the government dropped off and sent some sectors, like manufacturing, spiraling into “deep recession” territory.
Putin’s economic fantasy
The tailspin Sonnenfeld, Tian, and Guriev are predicting seems contradictory to what Russia is presenting on the surface. The nation’s economy grew 3.6% in 2023, according to data from Russia’s federal statistics service. Meanwhile, a record 56% of Russians believe the economy is improving, according to a 2023 poll.
But polls and economics stats coming out of Russia are “beyond misleading,” Sonnenfeld argued. Previously, he’s made the case that Russia’s growth figures are figments of “Putin’s imagination,” with the Kremlin cherry-picking favorable stats while keeping the more dire data points out of the public eye.
“There’s no confidence in the objectivity or the security of Russian polling,” he added. “It’s fully propaganda.”
Putin has claimed that Russia is on its way to becoming the new growth hub of the world. That too, is probably a lie, Guriev suggested.
“Putin doesn’t believe that Russia is doing very well. Putin understands the deficiencies of the statistics, but he needs to convince Russians that everything is fine,” he added. “This is his job as a dictator, to distribute this.”
Other economic indicators show a decidedly bleaker picture of Russia’s financial situation. The nation saw the flight of 1 million citizens from the country, 15% of its millionaires, and $19 billion in foreign direct investment in 2022 alone. And while robust military spending has propped up Moscow’s economy, that’s unlikely to last for much longer, with European researchers predicting a more sluggish growth trajectory for Russia into 2024.
Those stats show that the country’s economy is being “cannibalized” by the Ukraine war, Sonnenfeld previously said, no matter how much Putin touts the country’s resilience against sanctions.
Biden’s reelection and tighter sanctions could be the event that awakens Russian citizens to that reality, Sonnenfeld and Tian said. The West could deliver a potentially crippling blow to Russia’s economy if it were to look beyond the oil trade and sanction Russian steel, copper, and other metal commodities, which account for around 20% of the nation’s total revenue, they estimated.
Living standards in Russia, meanwhile, are already on the decline. Civilian infrastructure is breaking down, partly because Russia is spending too much on its war. Russian inflation is also high, clocking in at 7.58%, according to data from Russia’s economic ministry.
“[There] would be massive unrest when people in Russia realize that Putin’s promised path to victory is not going to materialize the way he’s promising, when people realize that in terms of Ukraine, there is no pathway to victory.”
Guriev doesn’t believe Russia’s economy will completely unravel, as central bankers will work hard to limit the damage. But inflation and constricted growth will be huge problems for Moscow, resulting in a painful economic restructuring.
“It’s unlikely the Russian economy will spiral into a macroeconomic meltdown, and that the Russian political system will,” he said. “The necessary condition for the end of this war is of course the change of the political regime and in particular the departure of Mr. Putin.”
Other economists have argued that at this point, Russia can neither afford to win nor lose its war, as its economy is too dependent on military spending to be able to stand up on its own.
