“In fact, the Russian economy is imploding”

High-frequency data indicates that Russian production, consumer spending, retail sales, etc. have falled.

Following discussion in the comments to yesterday’s update on Ukraine, this journal contains links, an introduction and key points from a July 2022 study of the Russian economy by a group of authors the Yale Chief Executive Leadership Institute; the authors are primarily associated with the business management and economics departments of Yale, Penn, and the Warsaw School of Economics.

Disclaimer, I don’t necessarily vouch for the impartiality of this group, they seem to have a solidly pro-Ukrainian approach (I agree!), but I haven’t investigated further if there has been any pushback scholar on their findings. That said, the results certainly seem well put together and reasonable for this old economist.

main document: “Trade retreats and sanctions cripple the The Russian economy” (100+ pages, includes slide deck at end).
Slides only: yale.app.box.com/…
Foreign policy article: In fact, the Russian economy is imploding, nine myths about the effects of trade sanctions and retreats, debunked.

EDIT: From the comments, a link to a video discussing the Yale report. Thanks!

Here is the introduction (with author links and my emphasis in bold):

As the Russian invasion of Ukraine enters its fifth month, a common narrative has appeared that the unity of the world in resistance to Russia somehow turned into a economic attrition war that is wreaking havoc on the wis”, taking into account the supposed resilience and even “prosperityof the Russian economy. It’s just plain wrong and one reflection of widely held but factually incorrect misunderstandings about how Russia the economy is actually staying in the middle of the exodus of more than 1,000 global companies and international sanctions.

That these misunderstandings persist is not surprising. Since the invasion, the Kremlin economic released have become increasegly cherryselected, selectively throw out unfavorable metrics while releasing only those who are more favorable. These poutineselected the statistics are then carelessly trumpeted in the media and used by lots of goodmeaning but negligent experts in the development of forecasts that are excessively, unrealistically favorable to the Kremlin which we explain in more detail in Section I of this article.

Our team of experts, using the Russian language and unconventional data sources, including frequency consumption data, crosschannel checks, international trade releases of Russia partners, and data mining of complex shipping data, released one of the the first one comprehensive economic analyzes measuring Russia’s current economic activity five months in the invasion and to assess Russia’s economic prospects.

From our analysis, it is clear: business withdrawals and sanctions paralyze Russia eeconomic, short termterm, and the longterm. We address a wide range of common issues misperceptions and shed light on what is really going on inside Russia…

Note, I emailed the corresponding authors asking if I could quote a longer than usual section of their introduction/abstract without violating fair use. I didn’t get an immediate response, and honestly, I don’t expect my little email to get their attention! But since that full report is currently available for free in its entirety at ssrn.com/…, and since they’ve also editorialized those findings publicly in the online Foreign Policy article, I think it’s fair to suppose the writers wouldn’t care. I quote the rest of the introduction in its entirety below. And of course, if the authors reply that they would prefer not to have such a long quote, or if the moderators of our site prefer it, I will edit this next excerpt:

Russia’s strategic positioning as an exporter of raw materials has deteriorated irreparably,as it now faces a weak position with the loss of its once major markets, and faces considerable challenges in executing a “pivot to Asia” with nofungible exports such in the form of channeled gas as we explain later in Section II of this document.
Despite some linento manage supply chain leak, Russian imports have largely collapsed, and the country faces great challenges in obtaining inputs, parts and technology from hesitant trading partners, leading to widespread supply shortages in its national economy as we explain later in Section III of this article.
Despite by Putin delusions of selfsufficiency and import substitution, Russian national production has completely stopped without the ability to replace losses companies, products and talents; the the exhaustion of Russia’s domestic innovation and production base have led to price spikes and consumer angst as we explain later in Section IV of this document.
As a result of the business downturn, Russia lost companies accounting for around 40% of its GDPreversing almost all of the three decades of foreign investment and underpinning the unprecedented simultaneous flight of capital and population in a mass exodus from Russia’s economic base as we explain later in Section V of this article.
Putin resorts to a manifestly unsustainable and dramatic fiscal and monetary intervention to overcome these structural economic weaknesses, which has already sent its government budget in deficit for the first time in years and emptied its foreign reserves even with energy price and the Kremlin’s finances are in much, much more a hopeless situation than is conventionally understood as we explain later in section VI of this paper.
Russia’s domestic financial markets, as an indicator of both current and future prospectsare the worst performing markets worldwide this year despite strict capital controls, and took into account sustained and persistent weakness within the economy with liquidity and credit contract in addition at Russia being substantially cut international financial markets, limiting its ability to into pools of capital needed to revitalize its crippled economy like us explain in more detail in Section VII of this document.
Looking ahead, there is no way out of economic oblivion for Russia as long as allied nations remain united in maintaining and increasing sanctions pressure against Russia as we explain later in Section VIII of this article.

The authors’ conclusions:

1. Russia cannot “rotate” its natural gas and oil exports to Asia enough to prevent a sharp drop in export earnings.
2. Russian imports have collapsed, severely hampering production.
3. The collapse in production, combined with large government subsidies to targeted groups of people and businesses, is likely to cause extreme inflation in Russia.
4. The value of the ruble is not very significant, since it can no longer really be exchanged.
5. Russian financial markets, including quasi-governmental oil and gas companies, are in free fall, indicating very low confidence in the future.

In sum: The penalties work.

Comments are closed.