The Russian economy is in decline although Putin denies it

According to numerous experts and research from Yale University, the effect of Western sanctions on the Russian economy is far greater than the country’s official statistics indicate.

According to the IMF’s latest forecasts, announced last Tuesday, the Russian economy will perform better than initially expected this year, with GDP down 6.0% in 2022. The Fund had previously forecast a fall in gross domestic product of 8 .5% in April. .

However, even if the short-term effects of the sanctions are less severe than initially expected, the real problems for the Russian economy will not appear until after 2022, according to Ian Bremmer, chairman of the Eurasia Group and one of the world leaders. the most renowned international analysts.

“According to anecdotal evidence, industrial disruptions are increasing as inventories run out and international parts shortages become unavoidable. Among the industries identified are the chip industry and the transportation industry, which in some cases reflect demand for dual-use military products,” Bremmer told CNBC on Monday.

The wider shortage may be exacerbated by government delays. He said that although less intermediate and investment goods are being imported, imports of consumer goods are increasing.

The most talented people are leaving Russia, according to Bremmer, who also stressed the importance of trade sanctions on sensitive technologies and the “longer timeframe over which sanctions hurt productivity and trend growth.”

In the short term, Russia was able to dodge the worst consequences of the sanctions, but it will not be able to do so in the long term. (Moscow News Agency distribution via REUTERS)

According to him, “the brain drain directly decreases the working-age population, especially the high-productivity population, which reduces GDP”.

It also impacts overall productivity, hampers innovation, and weakens overall economic confidence, which negatively impacts investment and savings.

The Eurasia Group predicts that a sustained, long-term decline in economic activity will cause Russia’s GDP to fall 30-50% below its pre-war level.

Yale Report

Similarly, recent research from Yale University warns against the “common narrative” that economic sanctions imposed on Russia after the invasion of Ukraine caused “disaster for the West, given of the so-called “resistance”, even of the “prosperity” of the Russian economy.

Yale School of Management scholars slam Russian President Vladimir Putin’s “chosen numbers,” saying, “That’s just plain wrong.”

“Corporate exits and sanctions harm the Russian economy in the short and long term,” conclude their investigations.

On September 14, 2017, a worker at the Nokian Tires factory in Vsevolozhsk, a city near Saint Petersburg, Russia, is working. Even some necessary technologies are difficult for the nation to find (REUTERS/Gleb Stolyarov/File picture).

Many companies and countries have stopped doing business with Russia or ceased operating there. In addition, the country has difficulty in acquiring components, raw materials and even some necessary technologies.

The situation is serious: “Despite the delusions of self-sufficiency and import substitution (…), Russian domestic production has completely ceased and is not able to replace lost companies, goods and talents”, adds the survey.

They argue that the companies that have fled the country have destroyed “nearly three decades of foreign investment” and “account for about 40% of its GDP”.

Putin “is resorting to unsustainable financial and monetary interventions” to deal with these problems, they continue, and the Kremlin’s finances “are in a much more critical state than the administration acknowledges”.

The Russian leader’s “pivot to China” may be based on “unrealistic assumptions”.

The survey indicates that “Russia is a small trading partner of China (…) and most Chinese companies cannot risk falling under US sanctions”.

They also note that despite tight capital controls, Russia’s domestic financial markets have underperformed the rest of the world so far this year, “sustained and continued economic weakness, with credit crunch and liquidity, as well as the effective exclusion of Russia from global financial markets”. ”.

The defeatist headlines that the Russian economy has picked up are simply untrue; the Russian economy is in free fall by all criteria and at all levels, and the time has not yet come to put the brakes on”.

Thus, Yale economists concluded that “Russia will continue to experience economic collapse as long as allied nations remain determined to maintain and increase sanctions pressure against Russia.”

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