Yale study says Russian economy hammered by war sanctions

Despite rising incomes from oil and gas, the Russian economy appears to be floundering amid tightening sanctions because of its war in Ukraine, according to a US academic study.

A Yale School of Management report used consumer data from Russia’s international trade and shipping partners to estimate economic activity in the five months after the February 24 invasion of Ukraine.

The Yale team looked at “private Russian language and unconventional data sources” which say imports have collapsed and domestic production is at a complete standstill.

“Kremlin finances are in much, much more dire straits than conventionally understood,” the study said.
“The findings of our comprehensive economic analysis of Russia are powerful and indisputable: not only have sanctions and the business retreat worked, they have thoroughly crippled the Russian economy at every level,” it reported.

The findings contradict claims that the west, where many countries are grappling with inflation spurred by the Ukraine conflict, is coming off worse than Russia in the war of economic attrition unleashed by heavy sanctions.

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

Moscow has stopped or censored the release of the government’s economic statistics, including trade data, issuing only selected numbers. But the Yale team studied wider data to establish wider estimates and reported that Russian status as a commodities exporter had suffered heavy damage. Imports had nearly ceased with Russia facing intense shortfalls of talent, replacement parts and technology. Even key imports from China, which has been largely supportive of the Putin regime, had dropped by more than half.

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

Approximately 1,000 firms have withdrawn from Russia since February, removing the business equivalent of 40 per cent of gross domestic product, exceeding US$600 billion, and affecting up to 5 million jobs, the researchers reported.

Analysts said the departure of the companies may not have an immediate impact but would force the Russian economy into a “dramatic, forced” transformation. The companies also had around 1 million Russian staff.

Data on industrial production in June showed a year-on-year contraction of 4.5 per cent in manufacturing. Some sectors appeared to be suffering a more serious decline, with car production declining by 89 per cent since June 2021.

Moscow. Picture credit: Wikimedia