Russia’s Economy Takes Heavy Damage From the War

Russia’s war on Ukraine is hitting its economy hard — with major long-term impacts expected on its growth.

Where is Russia being impacted?

1/ Shrinking labor force: Businesses are strapped for workers as young Russians were called to war, have fled the country or are being shifted to high-priority sectors.

Businesses are also having trouble sourcing parts in the face of sanctions — relying on older tech or China for semiconductors.

2/ Strained government budget: Earlier this month, Russian billionaire Oleg Deripaska said Russia could run out of cash in 2024.

But Russia’s government can still borrow domestically, and its sovereign-wealth fund still holds over $147B — which declined $28B prior to the invasion (WSJ).

3/ Declining oil revenues: At the start of 2022, tax revenue from oil and gas made up 45% of Russia’s federal budget.

• In the first two months of this year, Russia’s oil and gas tax revenue fell by nearly half.
• Oil prices have fallen nearly 40% from their peak last year, and existing sanctions are forcing Russia to sell at a discount.

Russian oil has found its way into China and India — and Russia is likely to become increasingly reliant on China.

Former Russian Central Bank official Alexandra Prokopenko said, “Russia’s economy is entering a long-term regression.”