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Yale study shows sanctions are crippling Russia’s economy

, July 28, 2022, 0 Comments

Researchers at Yale University say the Russian economy is suffering massive damage due to Western sanctions, despite Moscow downplaying the effect.

russia-economy-ukraine-marketexpress-inSanctions on Russia are taking a heavy toll on the economy, despite Moscow’s assertion that the country is not feeling the pinch, according to a new study from Yale University.

The authors claim their work casts doubt on Moscow’s claims that the economy remains robust and that the West is suffering more through “a war of economic attrition.”

What does the study say?

Yale’s team of experts used consumer data and figures from Russia’s international trade and shipping partners to measure economic activity five months after Moscow launched its invasion of Ukraine.

They found that Russia’s position as a commodities exporter had been irreversibly eroded, having been forced to switch from its main markets in Europe toward Asia.

The study said Russian imports have largely collapsed since the war began, and that the country is facing stark challenges securing crucial inputs, parts, and technology.

“Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent,” the team found.

“The hollowing out of Russia’s domestic innovation and production base has led to soaring prices and consumer angst,” the authors added.

With the exodus of some 1,000 global companies, Russia has lost companies that represent some 40% of gross domestic product, according to the study.

The report said Putin was resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over structural economic weaknesses.

It added that the Russian government budget had gone into deficit for the first time, and the Kremlin’s finances are “in much, much more dire straits than conventionally understood.”

Meanwhile, the authors said Russian financial markets — with an eye on future outlook — were the worst performing in the world, limiting capacity to tap new investment to revitalize the economy.

‘Cherry-picked’ statistics

“Since the invasion, the Kremlin’s economic releases have become increasingly cherry-picked, selectively tossing out unfavorable metrics while releasing only those that are more favorable,” the study said.

“These Putin-selected statistics are then carelessly trumpeted across media and used by reams of well-meaning but careless experts in building out forecasts which are excessively, unrealistically favorable to the Kremlin.”

New figures for Russian industrial production for June show that it was significantly depressed across a range of sectors compared with last year.

For cars, production was down by 89%, while for fiber optic cables it dropped by almost 80%.

What’s next for Russian economy?

The authors of the Yale study said that Russia had no path out of “economic oblivion,” provided that Western allies stay unified on sanctions.

“Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual — the facts are that, by any metric and on any level, the Russian economy is reeling, and now is not the time to step on the brakes,” it said.

A separate study by the German Institute for International and Security Affairs published in June also suggested that the Russian economy was in dire straits, despite having held up well initially in the face of sanctions.

“The sanctions’ effects are only just beginning to unfold: Supply-chain problems are intensifying and demand is falling quickly.”

“In the longer run, Russia’s economy will become more primitive as it partially decouples from international trade,” it said.

“To avoid social tensions, the government will intervene to support Russian businesses, leading to more protectionism and a larger state footprint in the economy.”