2024-11-28 09:10:00
The ruble is at its lowest level since February 2022 and the start of Russia’s ground military offensive in Ukraine, just over 110 rubles to the dollar. And despite Western sanctions, the Russian economy “seems” to be resisting. However, several signs suggest otherwise. Decipherment.
Officially everything is fine since Russia sharing less and less data. the country’s economy appears to have weathered the sanctions well, but weaknesses are emerging. What is most striking is the galloping inflation. Again according to official data, the increase in the general price level would be 9%, but according to various media and independent institutes inflation would be around 20-21%. This is reflected very concretely in the everyday life of Russians. The price of a kilo of potatoes has increased 73% since the beginning of the year, almost double for butter.
Listen tooHow to explain the surprising resilience of the Russian economy?
How to explain these impressive increases?
Yes, Western sanctions. They weigh on Russia’s financial health, especially due to import restrictions. The prices of basic products such as milk, bread, meat or fish necessarily increase. But also for reasons specific to the situation Russia finds itself in. She is in a war economy and spends a lot on his offensive Ukraine. About 40% of its budget is allocated to the operation of the military industry and the remuneration of its soldiers.
In any case, the authorities want to be involved. Notably, the Attorney General has ordered an investigation into this price increase and is committed to providing a response to allay public concerns.
Read alsoRussia: a robbery for 20 kilos of butter illustrates the explosion in prices
Key rate of 21%
A voice is raised and concerned about this trend, that of the head of Rostec. Rostec is Russia’s largest industrial conglomerate. It produces virtually all weapons and equipment for the war in Ukraine. Its director warns of a slowdown in production and speaks of the risk of bankruptcy. The reason is the key rate of the Russian central bank. Today it is at 21%. For comparison, that of the United States is 4.75%. This results in difficulties for Russian industry in exporting and borrowing since this rate is so high.
Slowing of growth
Russian growth certainly remains positive, but is slowing down. The International Monetary Fund currently forecasts growth of 3.4% for this year, just over 1% for 2025. Slow growth explained by labor shortages. The workers, in fact, are at the front, around 500,000 Russians have been killed in the fighting, others have fled the country. But above all, Russia is facing demographic decline.
With more than 1000 days of war, Moscow seems to have reached a turning point. It is an economic system, with low growth and high inflation, known as stagflation. This situation is in fact the other front Vladimir Poutineor “finding a balance between butter and weapons”!
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How has the disparity in inflation data impacted the daily lives of Russian citizens?
Interview Between Time.news Editor and Economic Expert on the State of the Russian Economy
Editor: Good morning, and welcome to Time.news. Today, we are delving into the intricacies of the Russian economy, particularly following recent developments that have led the ruble down to its lowest level since the start of the conflict in Ukraine. Joining us is Dr. Elena Moskva, an economist specializing in Eastern European markets. Thank you for being here, Dr. Moskva.
Dr. Moskva: Thank you for having me. It’s a pleasure to be here.
Editor: Let’s start with the ruble. It’s reported that it’s hovering around 110 rubles to the dollar. What do you think is driving this decline despite the official narrative suggesting the economy is holding up well?
Dr. Moskva: The current state of the ruble reflects a complex interplay of factors. While the Russian government has presented a façade of resilience against Western sanctions, the reality is that the economy is under considerable strain. The ruble’s depreciation is a significant indicator of economic instability, compounded by increased inflation and diminishing foreign investment.
Editor: Interesting point. You mentioned inflation—which the government claims is around 9%, but independent sources suggest it could be as high as 20-21%. What are the implications of this disparity in data?
Dr. Moskva: This disparity raises serious concerns about the transparency of economic reporting in Russia. The government’s lower figures are likely an attempt to maintain public confidence and avoid panic, while independent sources are revealing a much harsher reality. If inflation is indeed closer to 20%, the purchasing power of ordinary Russians is significantly eroded, leading to hardships in daily life, as price hikes on essential goods like potatoes and butter exemplify.
Editor: Yes, those increases are quite alarming. You mentioned the “war economy.” How has military expenditure affected other sectors in Russia?
Dr. Moskva: The burden of military spending is immense. Restructuring the budget to allocate approximately 40% to military operations means that essential social services and infrastructure developments are likely suffering. As basic needs such as food and healthcare face escalating costs due to sanctions and war, the civilian population bears the brunt of these economic decisions.
Editor: Speaking of sanctions, how effective do you think they have been in curbing Russia’s economic activities?
Dr. Moskva: The sanctions have undoubtedly impacted the Russian economy; however, some adaptations have emerged. Russia has sought alternatives in trade, particularly with countries that do not support the sanctions. Nonetheless, the long-term effects of these sanctions create a lasting rift in economic relations with the West and foster inefficiencies in the economy as access to technology and quality imports is compromised.
Editor: There’s also been mention of government investigations into price increases. Do you think this move is more about economic stability or public relations?
Dr. Moskva: It is likely a mix of both. While the government may genuinely want to address public concerns amid rising inflation, the timeliness of these investigations suggests a desire to maintain control over the narrative. Signaling to the population that there is official accountability can help soothe social unrest, which is particularly crucial in a time of war.
Editor: Thank you, Dr. Moskva, for shedding light on these pressing issues. As Russia navigates these turbulent economic waters, it will be crucial to observe whether official policies will shift in response to both domestic pressures and external sanctions.
Dr. Moskva: Thank you for having me. It’s a complex situation, and I think we can expect continued volatility as the situation unfolds.
Editor: This has been a captivating discussion. We appreciate your insights on the state of the Russian economy. Thank you for joining us today!
Dr. Moskva: Thank you! I enjoyed it.