As Putin orchestrates his reelection, a resilient Russian economy is a key selling point
By DAVID McHUGH and VLADIMIR ISACHENKOV
Associated Press
MOSCOW (AP) — Russians are finding a few imported staples, like fruit, coffee and olive oil, have shot way up in price. Most global brands have disappeared — or been reincarnated as Russian equivalents under new, Kremlin-friendly ownership. A lot more Chinese cars are zipping around the streets. Those who want a particular luxury cosmetic may be out of luck.
Other than that, not much has changed economically for most people in President Vladimir Putin’s Russia, more than two years after he sent troops into Ukraine.
That’s despite the sweeping sanctions that have cut off much of Russia’s trade with Europe, the U.S. and their allies.
That sense of stability is a key asset for Putin as he orchestrates his foreordained victory in the March 15-17 presidential election for a fifth, six-year term.
Inflation is higher than most people would like, at over 7% — above the central bank’s goal of 4%. But unemployment is low, and the economy is expected to grow 2.6% this year, according to the International Monetary Fund, double the previous forecast. That’s far above the 0.9% expansion predicted for Europe.
“There are difficulties, of course — they’re connected with the general situation in the world,” said Andrei Fedotov, 55, who was walking down the Tverskaya Street central shopping avenue a few blocks from the Kremlin. “We know this very well, but I believe we’ll overcome them.”
Higher prices “bother me, of course — like any consumer, I see them going up,” said Fedotov, who works in education. ”It’s connected to the times that we’re in, and which will pass.”
Brand manager Irina Novikova, 39, was upbeat despite higher prices in stores: “More domestic products have appeared, more agricultural products. Yes, we all see that some goods have disappeared.”
“Prices have gone up — if I used to buy three items for a certain price, now I buy one,” she said, but added, “Go look for Russian products, the shops with Russian goods.”
“Industry may have suffered, we know there have been some setbacks in that regard, but again, we’re adjusting and we’re reorienting our thinking, and we’re starting to look to our Chinese friends,” Novikova said.
Massive Russian spending for military equipment and hefty payments to volunteer soldiers are giving a strong boost to the economy. Government-subsidized mortgages are supporting apartment buyers in a powerful kick to the booming construction sector, as evidenced by several mammoth high-rise developments going up on the banks of the Moscow River.
Inflation rankles, but it’s also nothing new. Russia became more self-sufficient in producing its own food after 2014, when it took over Ukraine’s Crimea Peninsula and the resulting Western sanctions led the government to ban a broad range of food imports from Europe.
Planned government spending this year is roughly twice what it was in 2018. Yet the deficit remains manageable as taxes and oil revenue keep flowing in.
So-called parallel imports via third countries such as Georgia, Kazakhstan or Uzbekistan have allowed Russians with money to keep buying Western products — from sneakers to mobile phones and cars — from companies that no longer do business in Russia, usually for a significant markup.
A BMW SUV is still easily available, though at twice the price in Germany. IKEA shut its 17 Russian stores, but its furniture and home goods can be bought online — for a price.
Apple left, but an iPhone 15 Pro Max with 512 gigabytes sells for the ruble equivalent of $1,950 on Russia’s Wildberries retail site, about what the phone sells for in Germany.
Not that there aren’t strains on the economy. Companies face labor shortages after hundreds of thousands of men left the country after the start of the fighting in Ukraine to avoid mobilization, and hundreds of thousands of others signed military contracts.
Meanwhile, Russia’s oil exports shifted from Europe to China and India due to boycotts by Ukraine’s allies. To avoid sanctions and a price cap on oil shipments, Russia had to shell out billions to buy a shadow fleet of aging tankers that don’t use Western insurers who have to honor the price ceiling. Russia also lost its lucrative natural gas market in Europe after cutting off most of its pipeline supply.
The auto industry was decimated after foreign owners like Renault, Volkswagen and Mercedes pulled out. China replaced the European Union as Russia’s main trade partner, and Chinese vehicles swiftly took over half the car market last year, according to Ward’s Intelligence.
Many foreign companies also have left or sold their businesses to local partners at knockdown prices. Others, including Danish brewer Carlsberg and French food company Danone, have seen their Russian businesses seized by the government.
“The economy plays a very important role in all of Putin’s elections,” said Janis Kluge, an expert on the Russian economy at the German Institute for International and Security Affairs. “For most Russians, who choose to ignore the war, the economy is really the biggest issue.”
Economic stability “is a signal that Putin can use vis-a-vis the other elites that he is still able to mobilize the masses. And for that, it has to be genuine and not just a manipulated number,” Kluge said.
“So it is still important that there is this genuine support, even though there is no chance at all for the voters to change who is in office,” he said.
Gross domestic product, the economy’s total output of goods and services, remains “an abstract number” to ordinary people, and the ruble’s exchange rate is less of a symbol than it used to be because most people can’t travel and there are fewer imported goods to buy, Kluge said.
“What matters is inflation,” he said. “And this is an issue where the regime actually did some preparation.”
The central bank has been fighting price spikes by raising interest rates to 16%. The government has supported the Russian currency by requiring exporters to change foreign earnings from things like oil into rubles, holding down prices for remaining imports.
And a 6-month ban on gasoline exports from March 1 will help keep fuel prices down in Russia.
The government also has been offering apartment mortgages at drastically subsidized interest rates — a step that increases people’s sense of personal prosperity but that eventually will hit the government with a large bill.
Kluge said the key factor was Russia’s ability to keep exporting oil and natural gas to new customers in Asia. As long as the price of oil holds up, Russia can keep up its high level of spending on the military and social programs “indefinitely,” Kluge said.
Russia earned some $15.6 billion in oil export revenue in January, according to the Kyiv School of Economics’ Russian oil tracker. That’s about $500 million a day.
Longer term, the economy’s prospects are less certain. A lack of foreign investment will limit new technology and productivity. Government largesse may one day exceed the central bank’s ability to manage inflation. To what extent generous policies will continue after the election is up to Putin.
The chief risk to today’s stability is a sharp drop in the price of oil, now trading around $70 a barrel for Russia’s Urals blend. Thanks in part to sanctions and boycotts, that’s a discount from around $83 for international benchmark Brent crude.
But for now, state finances are more solid than many had expected.
“I have no good news” for people waiting for Russia’s economy to collapse “tomorrow” due to sanctions, former Russian central bank official Alexandra Prokopenko wrote on X, formerly Twitter. “It’s a big and resilient animal.”
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McHugh reported from Frankfurt, Germany.
