Russia's economy is starting to feel the pinch

Russia's economy is starting to feel the pinch
Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP

A couple weeks ago I pointed out that the Russian ruble was recovering even as economists were warning the Russian economy was headed for a big slump. Here we are at the end of May and the ruble is still doing okay but the signs that Russia is in deep trouble are becoming clearer by the day.


Gripped by heavy economic sanctions and increasingly isolated from Western suppliers, Russia worked on Thursday to keep its factories and businesses running and stave off a return to Soviet-era scarcity.

As the central bank slashed interest rates again in an effort to prop up the economy, its chairwoman, Elvira Nabiullina, warned that the coming months would be “difficult for both companies and citizens” as the fallout on the Russian economy deepens more than three months into the invasion of Ukraine…

Basic items, from paper to buttons, are in short supply. Prices of consumer goods have been soaring, with the inflation rate rising to 17.8 percent last month before dipping slightly. Sales in the lucrative energy sector, while still high, are projected to fall as European customers begin to pivot away from Russian oil.

One of the sectors being hit hard right now is airlines. Most of the passenger planes used in Russia were made in America or Europe and for three months now no spare parts for those planes can be imported into the country.

Unable to secure spare parts from Western airplane manufacturers, for instance, the Russian aviation sector is facing a crisis. About 80 percent of Russia’s commercial fleet consists of foreign-made planes, predominantly from Airbus and Boeing, both of which have stopped doing business with Moscow.

Ural Airlines, which has over 50 Airbus planes, has projected that it can safely fly them for only a few months before it will need to start “cannibalizing” from other aircraft — permanently grounding some planes to strip them for parts. The low-cost airline Pobeda, part of the state-run Aeroflot group, has already reduced its fleet from 41 to 25 planes, using its grounded aircraft for “cannibalized” parts…

In the aviation sector, even Russian-manufactured planes rely on critical Western-made components. Several Russian airlines operating Russia’s Sukhoi Superjet 100s have informed the government that they can no longer ensure proper maintenance of its French-Russian SaM146 engine. If a solution is not found quickly, the airlines have warned, most of their Russian-made fleets could be grounded by fall, the Russian business daily publication RBC reported…

“We don’t think on the commercial front it is particularly viable for them to, in the near or medium term, maintain or start the manufacture of competitive domestic civil aviation aircraft,” said a senior Biden administration official, who spoke on the condition of anonymity to discuss internal assessments…

“Russia’s safety record was not stellar before, maybe at the level of Indonesia,” said aviation analyst Volodymyr Bilotkach. “But now, flying a Russian carrier is turning into a game of Russian roulette.”


So they have maybe a few more months before most of their planes are grounded and air travel becomes impossible for most people. Long term maybe they can make their own parts but even then you’ll be taking a risk getting on one of these planes.

Something similar is happening with automobiles, though unlike airplanes Russia can manufacture replacements. As foreign auto makers pull out of the country, Russia is looking to bring back one of the forgotten brands that existed during the Cold War.

Last manufactured two decades ago, a surprise comeback for the Moskvich — which translates as “Muscovite” — is now on the cards thanks to the exodus of Western car manufacturers from Russia.

When French carmaker Renault announced its departure, Moscow mayor Sergei Sobyanin swooped, outlining plans to nationalize its Moscow factory — which had once been the production center for the Moskvich — for a modern revival of the classic car brand.

Despite the Moskvich’s “long and glorious history” – as Sobyanin, put it – enthusiasts told Reuters they are divided about plans to reboot a car many assumed had been consigned to the past…

“The Moskvich should not be touched: it died; it was killed,” said Stanislav Tsibulsky, referring to the painful demise of the Moscow car plant that manufactured the cars. He said plant workers did not receive salaries for years and thousands lost their jobs.

“The plant was pulled down, there was no museum, and now we’re planning on restoring the Moskvich,” he says.


Here’s what these looked like back in the day.

All of this to say, Russia’s economy is really taking a giant leap backward and yet, Putin continues to deny this has anything to do with the invasion of Ukraine.

President Vladimir Putin has unveiled double-digit increases to Russia’s minimum wage and pensions as soaring inflation and western sanctions push up the cost of living.

Putin admitted Russia faced “difficulties” but denied these were linked to what he referred to as the country’s “special military operation” in Ukraine and said the economy had “better dynamics than forecast by some experts”…

“This year is not a simple one [but] I do not mean that all these difficulties are due to this special military operation. Because in countries that are not conducting any operations, across the ocean in the US, in Europe, the inflation is similar,” Putin said.

So while President Biden is busy blaming inflation and gas prices on Putin, Putin is busy saying inflation is happening everywhere. At some point, you have to believe even nationalist Russians are going to stop believing what they are being told on TV.

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Jazz Shaw 8:31 AM on December 09, 2023