In response to Western sanctions, Russia wants to increase budget spending and cut interest rates further. The president of the Russian central bank Elvira Nabioellina said this to the Russian parliament on Monday.
The International Monetary Fund expects Russia’s economy to shrink by 11 percent this year as a result of sanctions over the war in Ukraine. Russia is currently going through its worst economic crisis since the early 1990s. The Ukrainian economy is shrinking by a multiple of that: by 45 percent, the IMF expects.
“The time when we can live on our reserves is coming to an end,” Nabioellina told the Russian parliament via video link. “We are entering a period where we need to focus on alternative business models.”
Also read this article: The blow of the sanctions hits the Russians hard
Products from previous generations
The chief executive of the Russian central bank was referring, among other things, to an acceleration of the replacement of foreign currencies, such as dollars and euros, to trade in rubles. Russian companies must “adapt,” said Nabioellina. “And companies have to look for new trading partners, or go back to making products from previous generations.”
According to Nabioellina, these adjustments of the economy are accompanied by rising prices of goods. Inflation in Russia was no less than 17 percent in March. Nabioellina said he does not intend to curb inflation too much, so as to prevent Russian companies from feeling the incentive to adapt to the new situation.
The impact for the Russian economy has thus entered a new phase, also according to the Russian government. While Western sanctions have hitherto mainly affected the financial markets, the impact on Russia’s real economy is now also becoming increasingly apparent.
This is already fully visible in the Russian capital Moscow. Moscow mayor Sergey Sobyanin wrote in a blog on Monday that the exodus of western companies will cost Moscow (12.5 million inhabitants) some 200,000 jobs.
Also read this profile of Elvira Nabioellina: The ‘grey cardinal’ must save the Russian economy, who is she?
Seeking salvation in Europe
Shell, Heineken, Booking.com, Uber, McDonald’s and Apple, among others, have closed their offices in Russia as a result of the war in Ukraine. The capital, in collaboration with the national government, is now making a fund of about 37 million euros available to help the population, for example to retrain staff.
In addition, Russian companies are also struggling with leaving staff as a result of Western sanctions. This concerns, for example, highly trained IT personnel, who are turning their backs en masse to Russian technology companies and seeking refuge in Europe.
Last month, a survey by the Russian tech workers’ association RAEK showed that between 50,000 and 70,000 tech workers have left Russia. Another 100,000 employees would be added in April.