As Vladimir Putin orchestrates his reelection, a resilient Russian economy is a key selling point

More than two years since the start of the Ukraine war and despite the sweeping sanctions that have cut off much of Russia’s trade with the West, most Russians find little change in the economy; the sense of stability is an asset for Vladimir Putin

Published - March 13, 2024 08:08 am IST - MOSCOW

People walk past a billboard with an image of Russian President Vladimir Putin and words reading “The West doesn’t need Russia, we need Russia!” in a street in Sevastopol, Crimea. File

People walk past a billboard with an image of Russian President Vladimir Putin and words reading “The West doesn’t need Russia, we need Russia!” in a street in Sevastopol, Crimea. File | Photo Credit: AP

Russians are finding that 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 Mr. 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 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.”

Brand manager Irina Novikova 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,” Ms. Novikova said.

Economic boost

Massive Russian spending for military equipment and hefty payments to volunteer soldiers are giving a strong boost to the economy. Government-subsidised 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.

Not that there aren’t strains on the economy. Companies face labour shortages after hundreds of thousands of men left the country after the start of the fighting in Ukraine to avoid mobilisation, 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 honour the price ceiling. Russia also lost its lucrative natural gas market in Europe after cutting off most of its pipeline supply.

‘The biggest issue’

“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 mobilise the masses. And for that, it has to be genuine and not just a manipulated number,” Mr. 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 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, Mr. 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 subsidised interest rates — a step that increases people’s sense of personal prosperity but that eventually will hit the government with a large bill.

Mr. 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 programmes “indefinitely,” He said.

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 Mr. Putin.

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