A resilient Russian economy is a key selling point for Putin as he plots his re-election bid

MOSCOW – Russians have found that the prices of some imported foodstuffs, such as fruit, coffee and olive oil, have risen. Most global brands have disappeared – or been reincarnated as Russian equivalents under new, Kremlin-friendly ownership. A lot more Chinese cars zip through the streets. Those who prefer a certain luxury cosmetic may be out of luck.

That's despite severe sanctions that have cut off much of Russia's trade with Europe, the US and their allies.

Inflation is higher than most people would like, at 7% – well above the central bank's target of 4%. But unemployment remains low, and the economy is expected to grow 2.6% this year, double the previous forecast, according to the International Monetary Fund. This is much higher than the 0.9% expansion forecast for Europe.

„Of course there are difficulties – they are connected to the general situation in the world,” said Andrei Fedotov, 55, as he walked along Tverskaya Street, the central shopping avenue a few blocks from the Kremlin. „We know this very well, but I believe we will overcome them.”

High prices „definitely bother me – like any consumer, I look at them,” said Fedotov, who works in education. „It's tied to the times we're in and it's going to pass.”

Brand manager Irina Novikova, 39, was upbeat despite the high prices in stores: „More domestic products have appeared, more agricultural products. Yes, we all see that some products have disappeared.”

„Prices have gone up – if I buy three things at a certain price, now I buy one,” he said, but „look at stores with Russian products, Russian products.”

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„The industry may have been affected, we know there have been some setbacks in that regard, but again, we are adjusting, we are reorganizing our thinking, and we are starting to look at our Chinese friends,” Novikova said.

Massive Russian spending on military equipment and high payments for volunteer soldiers provide a strong boost to the economy. Government-subsidized mortgages are providing a powerful boost to apartment buyers and the booming construction industry.

Planned government spending this year is double what it was in 2018. However, taxes and oil revenues continue to keep the deficit manageable.

Called parallel imports via third countries such as Georgia, Kazakhstan or Uzbekistan, Russians have allowed money to buy Western products from companies that do not do business in Russia – from sneakers to mobile phones and cars – usually at a significant markup.

The BMW SUV is still readily available, albeit at twice the price in Germany. IKEA has closed 17 of its Russian stores, but its furniture and home goods can be bought online – for a price.

Apple has pulled out, but the 512 gigabyte iPhone 15 Pro Max is selling on Russia's Wildberries retail site for the ruble equivalent of $1,950, about what the phone sells for in Germany.

Not that there are no strains in the economy. Companies face labor shortages after hundreds of thousands of men fled the country after fighting broke out in Ukraine to avoid conscription, and hundreds of thousands signed military contracts.

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The auto industry languished after the exit of foreign owners such as Renault, Volkswagen and Mercedes. According to Ward's intelligence, China replaced the EU as Russia's main trading partner, and Chinese vehicles quickly took over half of the car market last year.

Many foreign companies have also divested or sold their businesses to local partners at knockdown prices. Others, including Danish brewer Carlsberg and French food giant Danone, have seen their Russian businesses seized by the government.

„Economy plays a very important role in all of Putin's elections,” said Janis Klug, an expert on the Russian economy at the German Institute for International and Security Affairs. „For most Russians who prefer to ignore the war, the economy is actually the biggest issue.”

Economic stability is „a signal that Putin can use other elites, that he can still mobilize people. For that, it has to be real, not just a manipulated number,” Kluk said.

„So, even though voters don't have the opportunity to change who's in office, it's still important to have this real support,” he said.

GDP, the economy's total output of goods and services, is „an abstract number” for ordinary people, and the ruble's exchange rate is an index lower than it used to be because most people can't travel and there are fewer imports. Things to buy, Kluge said.

„The key is inflation,” he said. „It's an issue that the regime has really done some preparation for.”

The central bank is fighting inflation by raising interest rates to 16%. The government has supported the Russian currency by forcing exporters to convert foreign earnings from oil, etc., into rubles, and to lower prices for remaining imports.

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Also, a 6-month ban on petrol exports from March 1 will help lower fuel prices in Russia.

The government offers apartment mortgages at heavily subsidized interest rates – which boost people's sense of personal prosperity but ultimately hit the government with a huge bill.

Kluge said Russia's ability to export oil and natural gas to new customers in Asia is a key factor. As long as oil prices rise, Klug said Russia can keep spending at its high level on military and social programs „indefinitely.”

Russia generated $15.6 billion in oil export revenue in January, according to the Kyiv School of Economics' Russian Oil Monitor. That's about $500 million a day.

In the long run, the economy's prospects are limited. A lack of foreign investment will slow new technology and manufacturing. One day the government's largesse may outpace the central bank's ability to manage inflation. How liberal policies will continue after the election is up to Putin.

The main risk to stability today is the sharp drop in oil prices, now trading at $70 a barrel for Russia's Urals blend. That's about $83 off Brent crude, the international benchmark, thanks to sanctions and boycotts.

But for now, state finances are more solid than many expected.

„I don't have good news” for people waiting for Russia's economy to collapse „tomorrow” due to sanctions, former Russian central bank official Alexandra Prokopenko wrote on X, formerly Twitter. „It's a big and resilient animal.”


McHugh reports from Frankfurt, Germany.

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