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The collapse of the russian economy against the background of a full-scale russian invasion of Ukraine

The collapse of the russian economy against the background of a full-scale russian invasion of Ukraine

At the beginning of the new year, the results of the past year are usually summed up. The year 2022 turned out to be the first in the history of modern russia, when the key events for the country’s economy and the situation of citizens were not unemployment and rising prices, but a «special operation» and partial mobilization. European and American sanctions had a catastrophic impact on the russian economy. Russia has lost its position on the energy market, import substitution does not work, and Western and domestic businesses and wealthy russians are leaving the country. The exit from russia of more than 1,000 Western companies, whose investments amounted to more than $600 billion, and the number of jobs they created exceeded 5 million, put 40% of the russian economy under attack. According to even open data, military expenditures of the russian federation in 2022 increased by a third compared to the estimate for the previous year.

And although russian propaganda insists «the russian economy has endured and in some places even achieved success» and the problems of poverty have receded into the background for the population, even russia’s dubious state statistics show something else.

According to the Minister of Finance of the russian federation a.siluanov, the decline of the russian GDP last year amounted to 2.7%, that is, less than predicted. However, the modest figure of the reduction of russia’s GDP does not reflect the whole picture of the degradation of the economy of the aggressor country. Moreover, in some industries the situation is so catastrophic that it is forced to be recognized at the official level.

🔸 The main sanctions blow in 2022 was inflicted on the oil and gas sector of the russian federation. According to the Accounting Chamber, russian gas production in 2022 decreased by 18-20% to 671 billion cubic meters, and its export to key markets decreased by 46% and amounted to 100.9 billion cubic meters of gas. This is one of the minimum values of russian exports since 1995, when 117.4 billion cubic meters of gas were delivered to countries far abroad. And this despite the fact that almost 60% of russian budget revenues depend on the sale of energy resources.

🔸 During 2022, the production of oil products fell by 1.9%. And this is only the beginning, because under the conditions of the introduction of the price ceiling ($60/barrel), the price of the main export grade for russia, Urals, with shipment to primorsk, fell to $40.06/barrel. Moreover, countries that were once «friendly» to russia also introduced restrictions, and even Turkey, after introducing a price ceiling and a ban on tanker insurance, gave up 86% of russian oil. The level of oil and gas revenues laid down in the federal budget is based on an average oil price of $70/barrel, therefore the approved budget deficit for 2023 is 2.9 trillion rubles will increase even more when this indicator decreases.

🔸 One of the key branches of russian industry – metallurgy (8% of the national GDP), was on the verge of the strongest crisis since the collapse of the USSR. According to rosstat, metal ore production decreased by 6% last year, and steel production decreased by 10.1%. The head of the tussian Union of Industrialists and Entrepreneurs o.shokhin stated about the problem of selling 30 million tons of steel products and the prospect of mass reduction of workers in the industry, where about 670 thousand people work.

🔸 Anti-russian sanctions paralyzed its aircraft and automobile industry. After the start of the SMO, only 14 of the 60 automobile brands remained on the russian market (of which 11 are Chinese), and the production of trucks decreased by 39.8%, buses and minibuses by 25%, and wagons by 12.9%.

Due to a shortage of components, 2022 will be the last year of production of the main russian passenger plane Superjet 100 of the Irkut company. According to the results of 2022, the losses of roscosmos amounted to more than 50 billion rubles, cooperation in international projects was terminated for 2023-2024 (for the delivery of one cosmonaut to the ISS, NASA paid roscosmos $90.2 million).

🔸 Since the full-scale aggression, the country’s gold and foreign exchange reserves have decreased by $75 billion, from about $600 billion in reserves, almost $300 billion is blocked abroad. The net outflow of capital from russia in 2022 reached $251 billion (this is the highest level since 1994).

🔸 For the average russian, according to the results of 2022, putin’s adventure led to 12% inflation, a 15% increase in utility bills, a 29.4% increase in the cost of the «consumer basket», «a freezing» of the accumulative part of pensions until 2025, and a reduction in spending from the state budget on mandatory compulsory pension insurance. And it is not surprising that the number of people with incomes below the poverty line increased by 69%, reaching 20.9 million people at the end of last year.

❗️ In summary, it can be argued that the russian invasion of the territory of Ukraine was the cause of one of the longest economic downturns in the history of the russian federation. The war in Ukraine in just one year set back the russian economy for at least four years. According to the forecasts of leading russian economists, the economic crisis in russia will continue in 2023 and will reach its maximum by the middle of 2023.

  • 11 January, 2023

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