mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Russian Economy Blues
Russia and Ukraine in Economic Race to the Bottom

The Ukrainian economy has been nosediving as a result of the war with pro-Russian separatists and Russian troops (who, according to the Kremlin official line, have popped in for a quick vacation invasion on their personal time). But the Russian economy isn’t far behind. The ruble has hit a record low compared to the U.S. dollar and the Euro, the FT reports:

Nato’s warning that Russia has “well over 1,000 troops” inside Ukraine raised fears of a big escalation of the crisis, and left the rouble exposed.

The currency weakened 0.4 per cent on Friday, with as many as Rbs37.0280 required to buy a single dollar. The fresh slide took the rouble’s loss over the week to 2.6 per cent against the US currency. Against the euro the rouble fell 0.3 per cent to Rbs48.61.

Russia’s ban on importing Western food is only making things worse, and the runaway inflation has pushed the economy to the brink of a serious recession. Bloomberg explains:

The chance of Russia’s economy tipping into a recession is rising as the escalating crisis in Ukraine raises the risk of the government in Moscow retaliating with further import bans, according to a survey of analysts.

The probability of a recession in the next 12 months rose to 65 percent from 50 percent, the highest since the first such Bloomberg survey in June 2012, according to the median estimate of 26 economists in the poll. Russia will enact additional restrictions in retribution for sanctions imposed by the U.S. and the European Union, according to 15 of 25 economists. Of those, 12 expect Russia to target cars and consumer goods.

The standoff with the U.S. and its allies over Ukraine is capsizing Russia’s $2 trillion economy. The ruble weakened, inflation accelerated and capital flight quickened as the two sides exchanged salvos of sanctions. After the U.S. and the EU blacklisted some Russian individuals and businesses, President Vladimir Putin this month banned imports of some food products.

Western leaders have been trumpeting the severity of their sanctions against Putin, though as the reports of the Russian army in Ukraine show, those measures haven’t been as strong of a deterrent as they might have hoped. In the long term, however, as the Russian people suffer from an increasingly weak economy, Putin will feel the strain.

Features Icon
show comments
  • Duperray

    Wonderful !
    When do you schedule the great Russia fiasco? Next Monday Sept 1st, 2014?
    This is litterature for naïve readers, ah ah ah !

  • Duperray

    By the way, I don’t think 18% of Russia population needs Food Stamps…

    • Corlyss

      I bet the 99.5% that aren’t oligarchs would kill for a reliable food stamp program, not to mention the 1.5 cars and big screen tvs owned by most of the people classified as “poor” in this country.
      BTW are you guys still used grayed out featureless maps to depict the regions of the world not under Russian sway?

      • Felix Keverich

        There is no entitlement mentality in Russia: if you’re young and healthy, you’re supposed to work for your meal. It’s kind of obvious, isn’t it? US and Europe used to think like this too. But they have been spoiled by excess, and nowadays they are very sensitive to even minor economic pain.

        There is no punishing Russia, without also punishing Europe, and Europeans are not in the mood to sacrifice their consumption for the sake of American foreign policy.

      • Duperray

        So, according to you they are close to cannibalism, bows and arrows; You better not visit Russia otherwise you might return as a skeleton only..! Funny. American friends, you are supremely sure of overwhelming US superiority in every matter, dispaying contempt for everything else; after all you are free to believe what you want.
        But reality is that Sweden has a higher per capita GDP. How do they do without oil, gas and so on?
        You cannot close your eyes about US serious issues like the 25-30year burden to reimburse own high education loans, the 30-year loan for Home (which tears off after 25years), then the nightmarish cost to educate children, three Retirement Plans collapsing out of the minimum four needed to at least get one OK buying bread every day then. These distinctive US facts shall be corrected, is there any politcal will to?
        I wish to send you a funny map “World seen by american” but it is so far lost in my filing system !
        Have a good day

  • Legion

    Just like European economies a nosediving and stagnating despite all the hype about recovery. When Germany’s economy, the engine of Europe, contracts even by a trivial amount, it is time to begin wondering if recovery is at the end of the tunnel or just more malaise.

  • Jacksonian_Libertarian

    Why does the diplomatic community continue to think economic sanctions work? I can’t think of a single historical case where sanctions have worked. In fact what economic sanctions say about those who engaged in them, is that they’re feeble and weak and lack the political and military courage to take real action.

    • LarryD

      By themselves, sanctions don’t work,but they give the impression that Something Is Being Done! And that is why the diplomats and their political masters keep using them. When the public at home understand and aren’t taken in by the pretense, sanctions will stop being useful. But if the public doesn’t support real action, few politicians will have the stomach for it.

      There sure doesn’t appear to be any support in the States for anything more than usless gestures.

    • El Gringo

      It appears that sanctions are not enough. It’s time to escalate to strongly-worded letters.

    • Corlyss

      Why? Because on paper they’re supposed to work. Sanctions are the most extreme option the striped-pants crowd have control over. They NEVER want to recommend any option they and their allies at CIA don’t control – that, of course, would mean {{{{quelle horror}}}} DoD, the folks that actually get things done, assuming the politicos know what they want and what they will pay to achieve it. Besides, if State every were forced to admit sanctions serve only an optical purpose, it would mean they would have to acknowledge they and their ilk are largely ornamental, like rhinestones.

  • Felix Keverich

    Bleh. Just more wishful thinking as usual. I think it’s a good bet that Putin will outlast Ukraine.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service