Russia’s economy has weathered the West’s sanctions – but how?

Published

2 years ago

February 24, 2023

admin

In the aftermath of Russia’s invasion of Ukraine, Western leaders heralded a sanctions regime that would cripple the country’s war machine.

Joe Biden claimed Russia’s economy would be “cut in half”, while Boris Johnson spoke of squeezing it “piece by piece.”

A year has passed, but that great promise has been slow to deliver.

“The Russian economy and system of government have turned out to be much stronger than the West believed,” President Vladimir Putin said in a speech to the country’s parliament on Tuesday.

He was also flexing his muscles at an economic cabinet meeting last month: “Remember, some of our experts here in the country – I’m not even talking about Western experts – thought [gross domestic product] would fall by 10%, 15%, even 20%.”

Instead, Russia shrunk by a relatively modest 2.2% and it is expected to grow by 0.3% this year, according to the International Monetary Fund.

It means the sanctions-hit country will outperform Britain.

Among Western leaders, these predictions will make for unpleasant reading.

Over the past year, sanctions have descended on Russia’s economy but, to the surprise of most economists, it has weathered the storm.

This is largely down to the country’s oil and gas reserves. Although Europe turned its back on Russian energy exports, the country was able to exploit delays in imposing the ban, which helped bolster its public finances.

Revenues held up strongly thanks to a global spike in energy prices and a successful reorientation of trade to China and India.

Russia was already sitting on a comfortable cushion.

Record high trade surpluses following the invasion came after years of conservative fiscal policies which allowed the country to amass a fund that it is now deploying in the war against Ukraine.

The country has been quietly sanctions proofing its economy for years.

Russians are enjoying record low unemployment and wage growth that has helped them to weather the worst of rising inflation.

They’re still cautious about spending during times of economic uncertainty, but the government is trying its best to encourage them by hiking minimum wages and pensions.

While economic data is not wholly reliable, nor does it provide a full view of the strains Russian society is under, the domestic economy has not collapsed in the way some had warned.

President Putin is in a triumphant mood but it may not last for long as cracks are starting to show.

Oil revenues are slipping now that Western countries have introduced a price cap on Russian Urals, its main crude export blend, and the country’s public finances are deteriorating as a result.

At the same time Russia is having to ramp up military spending and is relying on sales of foreign currency – Chinese yuan – to support the rouble. Last year may have exceeded expectations, but the sting of Western sanctions is only just starting to be felt.

Jobs

Living standards in Russia have been supported by record high wage growth and low unemployment.

When the war first broke out, analysts expected the departure of foreign companies to lead to mass job losses.

Instead, unemployment fell to a record low of 3.7% as Western firms handed over their businesses to local partners, which helped to maintain employment.

However, the headline unemployment rate is disguising a massive drop in the size of the workforce.

Hundreds and thousands of skilled workers have left or fled the country, either to fight or find work elsewhere – estimates range from 0.4% to 1.4% of Russia’s workforce. This is weighing on economic growth, with the country’s central bank warning recently: “The capacity to expand production in the Russian economy is largely limited by the labour market conditions.”

As in Britain, where a shrinking labour market is affecting the country’s economic outlook and putting pressure on inflation, Russia’s fortunes will also depend on how well the size of its workforce recovers.

Tatiana Orlova, economist at Oxford Economics, said: “There is anecdotal evidence that some of those who left in panic in March or September have since returned, due perhaps to their being unable to find an equivalent job abroad or because they still had family and property back in Russia.”

Wages

The tight labour market has led to robust wage growth – especially for IT professionals, construction workers and hospitality staff – which is boosting living standards. Wage growth in Russia is almost keeping pace with inflation and the government is hiking pensions and the national minimum wage, which will go up by another 10% next January after rising by 20% last year.

Consumer spending

Oil revenues get a lot of attention but consumer spending is still the dominant part of the country’s economy and the government is hoping that the extra money will encourage Russians to go out and spend, something they have been cautious about indulging in over the past year.

It may have a large task on its hands, however. Many analysts expect Russia to launch a new offensive in the coming weeks in an effort to capture the whole of Donbas. If the country’s leadership announce a new wave of mobilisation then consumer confidence will likely drop again, causing households to prioritise saving over spending.

“The savings-to-disposable income ratio will rise again and stay elevated until the fighting abates, hampering authorities’ efforts to revive household demand,” Ms Orlova said.

Business investment

Another round of mobilisation could also start weighing on business confidence. In the early days of the conflict economists were convinced that business investment would collapse at its fastest pace in decades but that did not happen.

Bumper profits for oil, gas and fertiliser producers helped fund business plans, with fixed investment increasing by 6% in 2021.

As Russia diverted its energy exports to Asia, the country required a massive increase in infrastructure.

This also helped boost the country’s manufacturing sector, although not uniformly. The country’s car industry, for example, collapsed last year as manufacturers struggled to access key component parts and tools from the west. Others are coping by accessing parts from Turkey, which is yet to participate in the international sanctions.

Oil and gas

Attempts to strangle Russia’s economy were immediately stifled by Europe’s heavy reliance on Russian oil and gas exports, which make up about 40% of the country’s revenues.

Russia successfully exploited this.

In the nine months that it took for the EU to agree and implement a bloc-wide ban on Russian oil exports, Putin’s regime enjoyed record fiscal surpluses as the country benefited from soaring wholesale prices, with its current account surplus jumping by 86% to $227.4bn.

This gave Russia a giant cushion to help fund the war effort and strengthened its currency, helping keep the price of imports low and dampening inflation.

During this time the country was also able to redirect supply to India and China, where its overall crude and fuel oil exports reached a record high of 1.66 million barrels a day last month.

A more challenging 2023

This year will be more challenging.

The country’s public finances are already starting to weaken as lower energy prices weigh on revenues. A $60 a barrel price cap on Russian crude oil – imposed by the EU, G7 and Australia in December – means the country is being forced to sell oil at a considerably discounted price compared to the global Brent benchmark.

The cap was recently extended to refined petroleum products as well.

Russia’s budget deficit came in at £20.8bn in January as income from oil and gas fell by 46% over the year. At the same time, government spending increased by 59% over the year.

Economists identified these as early signs of strain, with the country having to sell more Chinese currency and issue local debt to support itself.

However, they were still relatively sanguine about the country’s prospects.

Sofya Donets, chief Russia economist at Renaissance Capital, said: “The fiscal deficit expanded in 2022 but remained still moderate at 2% – below the pandemic or the great financial crisis levels.”

She added: “With the public debt below 20% of GDP the financing is hardly an immediate source of the stress, though a sustainable decrease in oil and gas revenues will call for a medium-term fiscal consolidation and non-oil tax increase, we believe.

“This consolidation, however, is yet not that urgent and could be delayed by up to two years, we assume.”

Analysts said the country had scope to increase the tax intake by levelling windfall tax on energy and fertiliser producers.

Crucially, Russia is able to meet its financing needs comfortably at home.

Both the government and corporations have very low levels of external debt and the government has built up a robust sovereign wealth fund.

“We need to remember Russia has spent the best part of 10 years sanctions proofing its economy,” said Liam Peach of Capital Economics.

“What all this meant was being cut out of global capital markets and sanctions on various corporates, banks and the government didn’t really have much of an impact on their financial needs, because they were quite low. So Russia’s government, for example, could go eight months without issuing any debt.”

Business

Post Office scandal: Daughter has had ‘panic attacks’ since mum was accused of stealing

Published

3 hours ago

July 8, 2025

admin

Post Office scandal: Daughter has had 'panic attacks' since mum was accused of stealing

The daughter of a Post Office victim has told Sky News she suffered “dark thoughts of suicide” in the years after her mother was accused of stealing.

Kate Burrows was 14 years old when her mother, Elaine Hood, was prosecuted and subsequently convicted in 2003.

The first public inquiry report on the Post Office – examining redress and the “human impact” of the scandal – is due to be published today.

“I’ve suffered with panic attacks from about 14, 15 years old, and I still have them to this day,” Kate said.

“I’ve been in and out of therapy for what feels like most of my adult life and it absolutely categorically goes back to [what happened].”

Kate, along with others, helped set up the charity Lost Chances, supporting the children of Post Office victims. She hopes the inquiry will recognise their suffering.

“It’s important that our voices are heard,” she said. “Not only within the report, but in law actually.

“And then maybe that would be a deterrent for any future cover-ups, that it’s not just the one person it’s the whole family [affected].”

Her sister, Rebecca Richards, who was 18 when their mother was accused, described how an eating disorder “escalated” after what happened.

“When my mum was going through everything, my only control of that situation was what food I put in my body,” she said.

She also said that seeing her mother at court when she was convicted, would “stay with me forever”.

“The two investigators were sat in front of my dad and I, sniggering and saying ‘we’ve got this one’.

“To watch my mum in the docks handcuffed to a guard… not knowing if she was going to be coming home… that is the most standout memory for me.”

The sisters are hoping the inquiry findings will push Fujitsu into fulfilling a promise they made nearly a year ago – to try and help the children of victims.

Last summer, Kate met with the European boss of the company, Paul Patterson, who said he would look at ways they could support Lost Chances.

Despite appearing at the inquiry in November last year and saying he would not “stay silent” on the issue, Kate said there has been little movement in terms of support.

“It’s very much a line of ‘we’re going to wait until the end of the inquiry report to decide’,” she said.

“But Mr Patterson met us in person, looked us in the eye, and we shared the most deeply personal stories and he said we will do something… they need to make a difference.”

Fujitsu, who developed the faulty Horizon software, has said it is in discussions with the government regarding a contribution to compensation.

The inquiry will delve in detail into redress schemes, of which four exist, three controlled by the government and one by the Post Office.

Victims of the scandal say they are hoping Sir Wyn Williams, chair of the inquiry, will recommend that the government and the Post Office are removed from the redress schemes as thousands still wait for full and fair redress.

A Department for Business and Trade spokesperson said they were “grateful” for the inquiry’s work, describing “the immeasurable suffering” victims endured and saying the government has “quadrupled the total amount paid to affected postmasters”, with more than £1bn having now been paid to thousands of claimants.

Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK. In the US, call the Samaritans branch in your area or 1 (800) 273-TALK

Business

Trade war: Trump reveals first two nations to pay delayed ‘liberation day’ tariffs

Published

17 hours ago

July 7, 2025

admin

Trade war: Trump reveals first nations to pay delayed 'liberation day' tariffs

Donald Trump has warned that all goods from Japan and South Korea will face tariffs of 25% from 1 August.

The announcement, via his Truth Social platform, marks the restart of the threatened “liberation day” escalation that was paused in April, for 90 days, to allow for negotiations to take place with all US trading partners.

The president showed off copies of letters to the leaders of both Japan and South Korea informing them of the tariff rates. Those duties will come on top of sector-specific tariffs – such as 50% rates covering steel – already in force.

Money latest: Retailers release images of ‘prolific shoplifters’

He warned the rates could be adjusted “upward or downward, depending on our relationship with your country”.

Country-specific tariffs had been due to take effect from Wednesday this week but Mr Trump had earlier revealed that nations would start to get letters instead, setting out the US position.

Duties would take effect from 1 August, without any subsequent deal being agreed, it was announced.

The letters sent to Japan and South Korea cited persistent trade imbalances for the rates and included the sentence: “We invite you to participate in the extraordinary Economy of the United States, the Number One Market in the World, by far.”

He ended both letters by saying, “Thank you for your attention to this matter!”

The European Union – the biggest single US trading partner – is among those set to get a letter in the coming days.

Mr Trump has also threatened an additional 10% tariff on any country aligning itself with the “anti-American policies” of BRICS nations – those are Brazil, Russia, India, China and South Africa and whose members also include Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates.

The UK, bar a massive shock U-turn, should be exempt.

The country was the first to be granted a trade deal, of sorts, in May and the Trump administration has claimed many others had been offering concessions since the clock ticked down to 9 July.

The UK is not expected to face any changes to its current 10% rate due to the trade truce, which came into effect last week.

While UK-made cars aerospace products face no duties under a new quota arrangement, it still remains to be seen whether 25% tariffs on UK-produced steel and aluminium will be cancelled.

They could, conceivably, even be raised to 50%, as is currently the case for America’s other trading partners, because no agreement on eliminating the rate was reached when the government struck its deal in May.

It all amounts to more uncertainty for the UK steel sector.

A No 10 spokesman said on Monday: “Our work with the US continues to get this deal implemented as soon as possible.

“That will remove the 25% tariff on UK steel and aluminium, making us the only country in the world to have tariffs removed on these products.

“The US agreed to remove tariffs on these products as part of our agreement on 8 May. It reiterated that again at the G7 last month. The discussions continue, and will continue to do so.”

China and Vietnam have also secured some US concessions.

The dollar strengthened but US stock markets lost ground in the wake of the letters to Japan and South Korea being made public, with the broad-based S&P 500 down by 1%.

Stock markets in both Japan and South Korea were closed for the day but US-traded shares of SK Telecom and LG Display were down 7.5% and 5.8% respectively.

Business

Tesla shares sink as Musk launches political party

Published

18 hours ago

July 7, 2025

admin

Tesla shares sink as Musk launches political party

Shares in Elon Musk’s Tesla have reversed sharply over renewed concerns about his focus on the company’s recovery as he plots against Donald Trump.

Shares in the electric car firm plunged by more than 7% at the start of trading on Wall Street – taking about $71bn (£52bn) off its market value.

The stock has often come under pressure since Musk started his association with the president, latterly helping bring down federal government costs through a new department known as DOGE (Department of Government Efficiency).

Money latest: Call centre worker’s tips for getting discounts

But it is now suffering as their political relationship has soured.

Musk has publicly opposed the so-called “big, beautiful bill” – Mr Trump’s flagship tax cut and spending plans that received Congressional approval last week – since he left his DOGE role.

Musk wrote in a post on his X platform on 30 June: “It is obvious with the insane spending of this bill, which increases the debt ceiling by a record FIVE TRILLION DOLLARS that we live in a one-party country – the PORKY PIG PARTY!!”

Once the bill was passed, he created a poll on X, asking people if they would want him to launch the America Party.

He wrote on 4 July: “Independence Day is the perfect time to ask if you want independence from the two-party (some would say uniparty) system!”

The vote ended with 65.4% in favour of creating the party.

The formation of the America Party was announced the following day.

“By a factor of 2 to 1, you want a new political party and you shall have it! When it comes to bankrupting our country with
waste & graft, we live in a one-party system, not a democracy.”

“Today, the America Party is formed to give you back your freedom,” Musk posted.

Trump responded on his Truth Social account: “I am saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks.

“He even wants to start a Third Political Party, despite the fact that they have never succeeded in the United States –
The System seems not designed for them.”

Trump has previously threatened to go after Tesla‘s government subsidies and contracts through the DOGE department to save “big” as their relationship deteriorated.

Such threats have also pressured the share price at Tesla.

It has suffered throughout Trump 2.0 and, in fact, has trended lower since last December – shortly after Mr Trump’s election win was confirmed.

The possibility of tariff hits to the business, followed by actual tariff disruption, along with a consumer and investor backlash against Musk’s previous DOGE role have contributed to a 35% decline on the December peak.

The very absence of Tesla’s CEO dragged on the shares.

Tesla sales suffered globally as the trade war ramped up due to the imposition of tariffs by a government he supported, until the public row between him and the president began in early June.

Musk had only just renewed his 100% focus on Tesla and his other business interests by that time.

Tesla sales were down during the presidential election campaign last year and continued to decline, on a quarterly basis, during the first half of 2025.

Neil Wilson, UK investor strategist at Saxo Markets, said of the company’s share price woes: “Investors are worried about two things – one is more Trump ire affecting subsidies and the other more importantly is a distracted Musk.

“Investors had cheered Musk stepping back from frontline politics but are now worried he’s going to sucked back in and take his eye off Tesla.”