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Global Economy

What is known about Russia's economy

By Detlev Landmesser,

How hard are the massive Western sanctions hitting Russia? If one believes the announcements from Moscow, the cuts are painful, but they hurt the authors more than the powerful Russian economy.

A recent study by the Yale School of Management, on the other hand, made people sit up and take notice: the economists painted a catastrophic picture of the Russian economy. The sanctions imposed by Western states since the beginning of the invasion of Ukraine "not only worked," but "thoroughly paralyzed the Russian economy at all levels," according to the 118-page paper.

Around 1,000 foreign companies have left the country, which means the loss of up to five million jobs, according to the authors of the study "Business Retreats and Sanctions Are Crippling the Russian Economy". Industrial production collapsed. There is "no capacity to replace the necessary companies, products and talent".

Important data are kept secret

The perception often conveyed in Western media that Russia will be hit hard but that the economy is doing quite well is simply wrong. The authors explain this perception with the lack of key Russian economic data. Since the invasion began, the Kremlin's publications have become increasingly selective. Unfavorable data series would be concealed, while only those that cast a more favorable light on the situation would be published.

In particular, statistics on foreign trade, monthly oil and gas production, capital flows or the business figures of large companies are withheld. At the same time, a number of Russian statistical experts were dismissed. For their analysis, the Yale researchers evaluated, among other things, data from trading partners of Russian companies, banks, consumers and ship movements.

"Russia depends much more on Europe"

Accordingly, the assumption that the monthly income from oil and gas exports in the tens of billions keeps the Russian economy afloat is a myth. Russia's energy revenues have actually fallen over the past three months.

On the one hand, this is due to the fact that Russia's remaining energy partners, such as China and India, negotiated tough prices. For example, import data from China suggested that the country was buying crude oil from Russia at a $35 discount to the world price. On the other hand, large quantities of pipeline gas, for example, cannot simply be diverted to Asia. Accordingly, the US researchers see Russia facing an "unsolvable" problem in the event that European states become independent of Russian natural gas, since 83 percent of Russian energy exports have so far gone to Europe. "Russia is much more dependent on Europe than Europe is on Russia," say the Yale experts.

IfW expert: Overall study plausible

These are strong statements, but how do German economists assess the situation? Klaus-Jürgen Gern, Head of International Economics and Analysis of the Commodity Markets at the Kiel Institute for the World Economy, advises treating the Yale study with caution, as it clearly argues in the same direction in the context of the information war with Russia.

However, the overall picture conveyed is plausible. All macroeconomists foresee major problems for Russia: "It would be a big surprise if the Russian economy did not come to very serious difficulties and continue to develop," said the IfW expert.

"Import side crucial"

In fact, it is increasingly difficult to quantify what is really happening in the Russian economy. However, a collapse in Russia's gross domestic product of 20 percent or more, as some have predicted, is unlikely. "My forecast for this year is more in the order of around ten percent." According to Gern, the import side is particularly important for further development: "In the long term, it is crucial for the well-being of the Russian economy to what extent the failed imports can be replaced." In this respect, it is not a sign of strength when Russia reports a current account surplus, but one of weakness.

The economic forecast for the coming year will depend not only on the progress of the war, but also on whether Western countries can keep up their pressure on Russia's trading partners to limit much-needed imports.

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