According to a new report by economic experts and economists from Yale University, Russia’s economy has been badly damaged by sanctions and international company withdrawals since the country invaded Ukraine.
Though Moscow has raked in billions of dollars from continued energy sales at elevated prices, largely unreleased data shows much of its domestic economic activity has stalled since the Feb. 24 invasion, according to the report released in late July.
“The results of our comprehensive economic analysis of Russia are telling and undeniable: sanctions and corporate withdrawals not only worked, they have thoroughly crippled the Russian economy at all levels,” the Yale School of Management report said.
“Russia’s domestic manufacturing has completely ground to a halt, with no capacity to replace lost businesses, products and talent,” the 118-page report said.
The report was prepared by Jeffrey Sonnenfeld, President of the Yale Chief Executive Leadership Institute, and fellow members of the Institute, a mix of economists and business experts.
After Moscow halted or restricted the release of official economic statistics, including key trade figures, Sonnenfeld’s group used data from companies, banks, consultants, Russian trading partners and others to build a picture of Russia’s economic performance.
They also said they received unpublished data from Russian economic experts and data in other languages that supported their conclusions.
Even if Russia is able to earn more foreign exchange from gas and oil exports, it hasn’t offset the impact of Western sanctions.
And they argue that the country’s reliance on Europe to buy 83 percent of its energy exports exposes it to a greater medium-term threat.
“Russia is much more dependent on Europe than Europe is on Russia,” they said.
– car industry crashes –
Russia has largely weathered Western economic sanctions following Moscow’s seizure of Ukraine’s Crimea region in 2014.
President Vladimir Putin has pushed ahead with a program to replace some imports with domestic products and built up a buffer of financial reserves.
But the country’s industry remained heavily driven by foreign capital investment and the import of high-tech inputs that Russia did not master, such as semiconductors.
The barrage of deeper post-invasion sanctions targeted both of these vulnerabilities, the report said.
Around 1,000 foreign companies suspended operations in the country, which the report said could affect up to five million jobs.
Industrial production has collapsed, and Russian retail sales and consumer spending have fallen by 15 to 20 percent annually.
According to the report, imports have collapsed across the board; important imports from China fell by more than half.
A key example of Russian problems is the auto sector, according to the report.
Auto sales jumped from 100,000 a month to 27,000 a month and production has stalled due to a shortage of parts and machinery.
Without access to imported components, Russian manufacturers are launching cars without airbags or modern anti-lock braking systems and only with manual transmissions.
– Danger for gas income –
The report challenged the belief that the Russian economy survived thanks to the tens of billions of dollars the country earns each month from oil and gas exports.
Last week the IMF said Russia’s economy, although contracting, was performing better than expected on its energy and commodity export earnings.
According to the Yale report, energy revenues have fallen over the past three months.
According to the report, should Western Europe succeed in decoupling itself from Russian natural gas, Moscow would be faced with an “unsolvable” situation with no sales market.
“Any drop in oil and gas revenues or oil and gas export volume would immediately weigh on the Kremlin’s budget,” it said.
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