Updated: May 22, 2022
The Russian economy may fall by as much as 12% according to a leaked memo from the Russian Finance Ministry obtained by Bloomberg. The predicted drop in Gross Domestic Product (GDP) would be the worst since 1994, when the nation was just coming out of the collapse of the Soviet Union.
Even some of the more optimistic reports that were leaked predicted between 8% to 10%. However, some public statements have claimed the leak to be a fake. The ministry released a statement saying, “Preparation of official macroeconomic forecasts does not fall under the Finance Ministry’s authority.” Reportedly, Russian President Vladimir Putin has been involved in some infighting in the Kremlin over warnings that the economy would suffer with his planned “special military operation” into Ukraine.
This is the opposite from what the president has stated in public. Repeatedly, he has downplayed the West’s sanctions, saying that they have failed to have the desired effect. Additionally, he has even said that they are hurting Europe and the United States.
While the Russian ruble has returned to pre-invasion levels, it is in question if it can hold as more waves of sanctions continue to take effect. A mass exodus of financial assets and the targeting of their ability to export goods have racked the financial sector in Moscow.
The European Commission is moving to ban Russian oil imports for member states, and as a result a significant portion of their customer base is drying up. This hit to their export-heavy economy, and drain their total national GDP, could put Putin in a position with very little options.
According to Russia’s Central Bank, many employers have felt the strain as well. Layoffs, reduced wages, and temporary business shutdowns have weakened much of the economic strength, even at the local level. The Russian military industries have also been put in a difficult position as some hardware and microprocessors become scarce.
The Russian economy is estimated to be approximately $1.5 trillion yearly. For comparison, China’s economy is around $17.7 trillion and the United States is almost $21 trillion. With almost half of its oil customers walking away and the war in Ukraine costing them an estimated $900 million each day, it's unlikely this pace is sustainable for much longer.
While some of the daily lives for Russian citizens have not felt the ripples of the economic impact, it is estimated that the longer term effects of Putin’s decision to invade may have lasting effects for years or decades to come.
Cover image from Business Media Georgia