Russia's Economy Reportedly Performing Well, Despite Sanctions

Russia's Economy Reportedly Performing Well, Despite Sanctions

The sanctions initially placed by the Trump administration on the Russian Federation - as well as several Russian business and oligarchs - have not been taken by the Kremlin lying down.

On May 22, Russia’s State Duma (lower house of parliament) passed a “counter-sanctions law” against the U.S. and other unfriendly states that have participated in restrictions imposed on the country. The law stipulates that the Russian president has the authority to prohibit business with American firms, provided they do not produce vital supplies or other basic commodities which have no counterparts produced in Russia or other “friendly” countries. Under the law’s framework, decisions on counter-sanctions may be made by the president based on proposals submitted by the Russian Security Council.

Russian media have claimed that a number of U.S. firms have approached Russian leaders requesting that changes be made to the law that would allow them to maintain their operations in the country. Foreign Ministry official Georgy Borisenko reportedly told parliament in a recent address that "In the United States, the reaction comes from business circles as a great number of major U.S. companies have been actively working on the Russian market since the Soviet Union time and would like to stay here." Although the truth of this “appeal” by the U.S. business

world has not been confirmed, if even partially true, it would underscore how Russia can bite back in a way that would affect American companies.   

Despite these early signs of a damaged Russia, the consensus view among analysts seems to be that the tightening of U.S. sanctions and the fall in the rouble in early April have had little impact on the real economy so far.

With Russian GDP growth nearing two percent now, and the working age population shrinking at one percent per year (meaning the growth is actually closer to three percent per person), that puts the nation’s economy in a pretty good state. Indeed, fluctuations in GDP by a few percentage points here or there isn’t necessarily the best way to judge the Russian economy’s health. From the perspective of the Russian people, the market is doing just fine. This is because the incredible population decline in the country has led to a lower supply in the workforce, resulting in pretty low unemployment. There are few discontented young people. All of these signs on the ground are confirmations of optimistic voices among economists, predicting steady growth of the Russian market despite the burden of sanctions.   

Additionally, Putin has initiated some very interesting economic policies to help Russian companies to turn economically inward, relying on the domestic economy as opposed to global markets. For instance, government sources have announced their willingness to support Russian firms affected by sanctions, essentially subsidizing these companies for losing their international market share.

Only time will tell how much the administration’s restrictions on Russia will accomplish their intended effect. Ultimately it will depend to a great extent on the compliance of other nations, their ability to wiggle around the technicalities of the sanctions, and their pull to the American market over Russia’s.