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'I'm In Shock': Russians Brace For Hardship As Putin's War On Ukraine Plunges Economy Into Crisis

People stand in line to withdraw money from an ATM of Alfa Bank in Moscow on February 27.
People stand in line to withdraw money from an ATM of Alfa Bank in Moscow on February 27.

Russians are bracing for an economic recession that could be the steepest since the 1990s after the United States and its allies imposed “crushing” sanctions on Moscow, seeking to punish President Vladimir Putin for the unprovoked invasion of Ukraine.

Citizens are facing a future of surging inflation, rising unemployment, expensive credit, capital controls, shortages of goods, and restricted travel, analysts said -- problems emblematic of the decade following the Soviet Union’s collapse in 1991 -- as the Russian state wages war in an apparent bid to subjugate its smaller western neighbor.

The dark outlook, which could persist for years if Putin pushes ahead with his military goals -- stands in grim contrast to the optimistic economic forecasts made just three months ago by the International Monetary Fund, which predicted growth of 2.8 and 2.1 percent respectively in 2022 and 2023.

Instead, the invasion Putin unleashed on Ukraine on February 24 triggered a slew of unprecedented sanctions that are quickly isolating Russia from the West and rupturing its economy.

The ruble has tumbled to record lows, interest rates have shot up to 20 percent, close to a two-decade high, and foreign firms are fleeing a country that is now widely considered in the West to be a pariah state. Russia’s economy could shrink by as much as 10 percent this year, according to one analyst, which would be its worst performance since 1994.

The turmoil is sending Russians around the country racing to withdraw money from ATMs, purchase imported consumer goods such as computers and phones, and convert their rubles wherever possible amid fears of banking disruptions, rising prices, and further devaluation.

People wait to withdraw U.S. dollars and Euros from an ATM in St. Petersburg on February 25.
People wait to withdraw U.S. dollars and Euros from an ATM in St. Petersburg on February 25.

Putin became acting president on the last day of 1999, and a prominent Kremlin narrative has cast him as something close to a savior -- a leader who rescued Russia from the deprivations of the first post-Soviet decade and brought economic stability where there had been turmoil.

That image is at risk of being torn apart as Russians, already hit by declining real incomes in recent years, face a newly uncertain future.

“Yes, we have returned to the 1990s, maybe to a period even worse,” Elvira, a mother of two from the wealthy Siberian oil-producing city of Surgut, said in a post on her social media page. “But what can you do, such are the times.”

The Group of Seven (G7) nations as well as additional European countries including Switzerland, a major financial hub for wealthy Russians, have imposed harsh financial sanctions on Russia since the invasion, including measures targeting its central bank.

Ruble Woes

The sanctions froze a significant part of the central bank’s foreign currency reserves, weakening its ability to protect the ruble, which crashed by more than one-quarter, to a record low of 121 to the dollar, on February 28 before recovering some of those losses.

The ruble has lost more than a third of its value since Russia began massing more troops near Ukraine’s borders in October, driving up prices for imported goods.

Natalia Orlova, chief economist at the Moscow-based Alfa Bank, said she now expects inflation in the coming months to reach as high as 30 percent.

Across the country, Russians have voiced concerns about inflation and other potential problems for their pocketbooks in comments to RFE/RL, saying they will cut back on discretionary spending and reduce their budgets for groceries and other basic goods.

“The money that I have in rubles will lose its value,” one man in the Baltic Sea exclave of Kaliningrad told Current Time, an English-language network run by RFE/RL in cooperation with VOA. “Prices will rise – but wages probably won’t.”

After U.S. technology firms Google and Apple disabled their payment apps in Russia in response to the sanctions, some citizens experienced problems

“The payment app on my phone stopped working today – I couldn’t pay at the store. So, I came here get money from a cash machine,” a man at a bank branch in the Siberian city of Tomsk who gave only his first name, Nikolai, told RFE/RL’s Siberia.Realities.

A woman walks past a closed 're:Store,' an Apple reseller shop at a mall in Saint Petersburg on March 2.
A woman walks past a closed 're:Store,' an Apple reseller shop at a mall in Saint Petersburg on March 2.

In Ulan-Ude, the capital of the Buryatia region near Lake Baikal, Oleg Mokhosoyev went out in search of cash over the weekend -- and had to try several ATMs before he found one that had anything to withdraw.

“I heard that debit cards may not work and so I decided it was better to be safe than sorry,” he said.

'Falling Apart'

Oleg Abyelyev, a professor of economics at the Foreign Trade Academy in Moscow, told Siberia.Realities that the high interest rates will kill the nation’s mortgage market for the foreseeable future.

“There are few Russians who can afford rates above 20 percent,” he said.

That spells trouble for the nation’s home builders as well as the construction and real estate sectors writ large.

“My deals are falling apart due to the political atmosphere,” a real estate agent in Kaliningrad told Current Time, referring to the situation that has unfolded since the invasion of Ukraine began.

Construction is just one sector that is likely to experience a sharp increase in unemployment.

Banking, IT outsourcing, manufacturing, travel and hospitality, and retail could also see mass layoffs driven by sanctions, devaluation, and Russia’s pariah image, analysts and industry professionals have said.

Surging inflation and shortages of goods are just two of the problems Russian consumers will have to contend with if the crisis over Ukraine continues.
Surging inflation and shortages of goods are just two of the problems Russian consumers will have to contend with if the crisis over Ukraine continues.

The sanctions imposed by the United States and its allies also include export controls designed to deny Russia technology to modernize its economy, including its military-industrial base. They could also affect auto production.

Economist Vladislav Inozemtsev, director of the Center for Post-Industrial Society Research, told RFE/RL’s Idel.Realities that a “wave” of Western companies will annul their contracts with Russian firms and independently impose “all kinds of restrictions” in their dealings with Russia to protect themselves from reputational and sanctions risks.

Major foreign investors including energy giants BP and Shell have already announced their withdrawal from Russia. Leading consumer goods suppliers, such as Apple and Dell, have said they will halt sales to the country.

Elina Ribakova, an economist at the International Institute of Finance, told a virtual conference organized by BNE Intellinews on March 1 that Russia’s economy could contract by double digits this year because its companies may not be able to acquire Western components critical for manufacturing.

“Companies will not work with Russia anymore because it's politically toxic,” Ribakova said. The country is “basically going from one economic structure to a completely different one where [it is] closed and I think that is what causes this big contraction.”

Even if foreign firms are still willing to work with Russian clients, inflation will still be a major headache, the owner of a large food producer in the Siberian city of Tomsk who identified himself only as Aleksandr, told Siberia.Realities.

“I’m in shock,” he said.

Producers need to give supermarkets and other retailers notice two months in advance of a price increase, he said, adding that his company will have to completely absorb the higher cost of the imported packaging and other components for the next eight weeks.

If retail stores fear further inflation and stock up on items before price increases can go into effect, “they will simply destroy the producers,” Aleksandr said.

“I’m against the war in Ukraine,” he said. “Why was it necessary to take this drastic action [and] bring about this crazy economic downturn? They should have reached an agreement.”

RFE/RL’s Siberia.Realities, RFE/RL's Idel.Realities, and Current Time contributed to this report
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    Todd Prince

    Todd Prince is a senior correspondent for RFE/RL based in Washington, D.C. He lived in Russia from 1999 to 2016, working as a reporter for Bloomberg News and an investment adviser for Merrill Lynch. He has traveled extensively around Russia, Ukraine, and Central Asia.

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