The Russian ruble has fallen to a record low since the beginning of the Russian war against Ukraine, reaching the level of March 2022. Analysts attribute the sharp drop to large budget expenditures, the decision of the RF Ministry of Finance to buy foreign currency, companies’ refusal to return foreign exchange earnings to Russia, and worsening foreign trade balance indicators, FREEDOM reports.
Analysts add that the drone attack on the port of Novorossiysk for the first time since the start of the war endangered Russian oil exports. Despite the fact that the oil and gas revenues of the Russian budget for the first half of 2023 have already decreased by 50%. Important indicators for the Russian economy began to decline after the invasion of Ukraine.
“Putin has fallen into the trap of time trying to recreate the Soviet Union and relive its “glory days”. As a result, Russia’s 30-year romance with the West came to an end, a relationship that gave it access to new energy markets and advanced technologies. Russia’s war has backfired, sending its economy back to much darker days,” said energy expert Ken Silverstein in The Telegraph.
Against the background of the falling economy, the Russian ruble for the first time since the spring of 2022 fell to the level of 96 rubles. per dollar. For an ordinary Russian, this means a decrease in his income in relation to prices.
“All ruble assets are depreciating. Plus, the exchange rate is sure – this is the law of economics – followed by inflation. This means that inflation will accelerate. The figure that inflation will be 4-5-6% this year is a joke for chickens. It will not even be 14. If the exchange rate is 95, then I predict inflation of 18%,” said economist, rector of the International Institute of Business Alexander Savchenko.
Despite this, Russia is doubling its defense spending plan in 2023. According to Reuters, they already account for a third of all government spending. According to the agency, in the first half of the year Russia spent almost 1 trillion rubles on military salaries. This is 543 billion rubles. more than in the same period last year. The Kremlin is increasing spending on war to the detriment of other sectors of the economy and social guarantees.
“Funding for schools, hospitals and roads has already declined this year in favor of defense and security, but as the share of defense spending rises, other areas may face cuts,” Reuters said in a publication.
Russia is facing a labor shortage. Back in the spring of 2023, British intelligence reported that up to 1.5 million Russian citizens left the country in 2022, most of them young and educated, working in highly profitable industries. According to the head of the Office of the President of Ukraine Andriy Yermak, Russian industry is experiencing a record shortage in the labor market.
“In July 2023, 42% of industrial enterprises experienced a shortage of workers. The tightening of sanctions with a focus on hitting the Russian military-industrial complex will make it possible to paralyze terrorists,” Andrey Yermak emphasized.
Putin acknowledges that a shortage of labor can lead to increased wage costs and undermine the entire economy of enterprises. That said, analysts say that while the Russian economy is unlikely to contract much this year, ruble weakness is a risk. According to the Eurasia Group, the devaluation of the ruble “will exacerbate financial instability and will undoubtedly exacerbate the already growing inflationary risk in the coming months.”
Earlier it was reported that import substitution in the Russian Federation failed on all fronts. The network of clothing stores Maag, which opened in Russia instead of Zara, who left the country, reported serious losses: the company’s income is on average 10 times lower than that of Zara. Restaurants Vkusno i Tochka, an attempt by Russian oligarchs to replace McDonald’s, suffered 11 billion rubles. losses over the past year, while the American network for 2021 had a profit of 2 billion rubles. Stars Coffee, which opened on the site of world-famous Starbucks coffee shops, saw a 76% drop in sales compared to Starbucks.