Economy Putin 14 September 2022

Putin increasingly divorced from reality of Russian economy

On the consequences of war in Ukraine: “We haven’t lost anything. And we won’t lose anything. The main benefit is the strengthening of our sovereignty.”

Officially, the authorities have spent the past several months insisting that everything is fine with the Russian economy. Meanwhile, the state is increasingly concealing data that would allow us to assess the true state of affairs. The real picture is debated behind closed doors, rather than in front of the cameras. For example, this week Bloomberg published several possible scenarios for the future of Russia’s economic development. These were discussed in a closed government meeting at the end of August. Almost every scenario anticipates a protracted economic slump which Russia may not escape before 2028-2030.

On the gas war with Europe: “The European gas market ceased to be premium.”

For Gazprom, the European market has always been premium, in the sense that the majority of the company’s revenues came from delivering gas to Europe. Following the start of the war and the ensuing gas confrontations, gas prices reached record levels and in Europe they remain as high as ever: $2,330 for 1,000 cubic meters (at the Dutch TTF hub) compared with, around $1,960 in Asia (JKM Platts index). Gazprom has all but stopped selling gas to Europe, but not because of low prices. This is how the state wishes to punish Europe for sanctioning Russia and supporting Ukraine. And the EU itself plans to impose a price cap on Russian gas.

On the grain deal with Ukraine: “It turns out that, once again, to put it crudely, they tossed us aside. They cheated us. And not just us, but the poorest countries in the world …”

Putin believes that thanks to July’s grain deal, Ukraine is exporting grain to Europe rather than sending it to combat hunger in developing countries. It’s true that, as before, Ukraine is selling produce to Europe. However, on Aug. 30 the first cargo ship delivered grain to Djibouti in Africa. From there, it will be delivered to drought-stricken Ethiopia. In addition, grain vessels from Ukrainian ports reached Turkey.

After the start of the war, the Black Sea ports were blocked. As a result Ukraine could not export produce (agriculture makes up about 10% of the country’s GDP). Meanwhile, Russia was repeatedly accused of exporting grain stolen from Ukraine.

On Western currencies: “Before our eyes we have seen a collapse in confidence in the dollar, the euro and the pound sterling as currencies in which you can make payments, keep reserves and hold assets.”

After the outbreak of war, the West took unprecedented steps against the Russian economy by freezing the Central Bank’s assets. This sparked discussion about trust in the global financial system. But any talk of a loss of confidence in the dollar is clearly premature. For one, countries that reject the dollar struggle to attract foreign investors because they have limited scope for economic growth. The dollar’s positions are also backed by strong institutions with high liquidity and full convertibility. The same applies to the euro and to sterling.

On unemployment and the labor market: “Our unemployment rate – the most important indicator of the country’s economy – is at a low of 3.9%.”

This is true. But there’s a catch: Russian employers don’t lay off staff during a crisis — they reduce pay. Some reduce salaries, others send workers on enforced unpaid leave, others cut back working hours. In addition, unemployment figures are always lower in the summer: people often prefer to rest rather than seek work. Finally, people rarely register with the labor exchange due to Russia’s low unemployment pay. They typically prefer to enter the gray economy or grab any work that comes along.

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