# Analysis: Russians feel little economic pain now, long-term outlook darkens Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-05-30 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Is Russia Heading for Economic Crisis? Meta Description: Despite forecasts of deep economic crisis in Russia, barbershop chain owner Oleg Kechin remains confident as his business continues to draw in customers in URL: https://financedigest.com/analysis-russians-feel-little-economic-pain-now-long-term-outlook-darkenshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-05-30t112307z2lynxmpei4t0fyrtroptp4ukraine-crisis-russia-economy-1736815680253-compressed.jpg) By Jake Cordell LONDON (Reuters) – For Oleg Kechin, owner of a chain of barbershops, forecasts that Russia will be plunged into its deepest economic crisis in a generation feel overdone. U.S. President Joe Biden may have promised that [Western sanctions would wreak economic havoc in Russia](https://www.financedigest.com/explainer-how-western-sanctions-will-target-russia.html "Explainer-How Western sanctions will target Russia"), but Kechin’s business is still drawing in customers in the town of Saransk, which lies 510 km (320 miles) southeast of Moscow. “There’s no deep crisis. In general, everything’s fine,” he said. “Everyone’s talking about a decrease in purchasing power, but I haven’t noticed it.” Yet, such confidence may not be entirely well placed, if some indicators are to be believed. Trade with the outside world has plunged, [consumers are reluctant to spend and rising prices](https://www.financedigest.com/analysis-to-raise-prices-or-not-consumer-goods-makers-weigh-bets-on-buyer-strength.html "Analysis-To raise prices or not? Consumer goods makers weigh bets on buyer strength") on basic items are starting to squeeze household budgets. [Russian officials](https://www.financedigest.com/u-s-russian-officials-set-for-security-talks-on-january-10-u-s-official.html "U.S., Russian officials set for security talks on January 10 – U.S. official") insist the economy is holding up. The central [bank slashed interest rates by three percentage points to 11% on Thursday and expects to cut its forecast for inflation](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") for this year from the current prediction of 18-23%. Under [capital controls and orders](https://www.financedigest.com/austrian-regulator-orders-system-relevant-banks-to-up-capital-buffers.html "Austrian regulator orders system-relevant banks to up capital buffers") that exporters sell half their hard currency earnings, the rouble has rallied and, at about 66 to the U.S. dollar, is stronger than before [Russia sent its armed forces into Ukraine](https://www.financedigest.com/analysis-action-wanes-at-u-n-to-isolate-russia-almost-six-months-into-ukraine-war.html "Analysis: Action wanes at U.N. to isolate Russia almost six months into Ukraine war") on Feb. 24. \[RU/RUB\] President Vladimir Putin, who has welcomed the departure of foreign [firms which have sold up or just dumped Russian](https://www.financedigest.com/pizza-firm-dp-eurasia-delivers-profit-rise-evaluating-russian-business.html "Pizza firm DP Eurasia delivers profit rise, evaluating Russian business") assets, said Russia could not be isolated from global trade. But not everyone is convinced the economy will escape unscathed. Roman, a 25-year-old in Moscow, who asked not to be identified by his full name, said middle class [life was not “drastically different” than before but he saw worrying signs](https://www.financedigest.com/digital-ad-market-shows-signs-of-life-but-economy-clouds-2023-outlook.html "Digital ad market shows ‘signs of life’ but economy clouds 2023 outlook"). “One thing that bothers me … is constant [price rises](https://www.financedigest.com/oil-prices-rise-on-u-s-drawdown-chinese-fears-weigh.html "Oil prices rise on U.S. drawdown, Chinese fears weigh") for everyday goods and even vegetables. I think that [signals the worst is yet to come.”](https://www.financedigest.com/stocks-shed-gains-treasury-yields-jump-as-fed-signals-rate-hikes-could-come-soon.html "Stocks shed gains, Treasury yields jump as Fed signals rate hikes could come ‘soon’") he said. The situation with the [labour market](https://www.financedigest.com/sterling-little-changed-after-mixed-labour-market-data.html "Sterling little changed after mixed labour market data") in my sphere doesn’t make me very optimistic either. [‘DEMAND CRISIS’](https://www.financedigest.com/global-emi-shielding-market-significantly-hit-by-lack-of-consumer-demand-scenario-post-covid-19-crisis-likely-to-remain-gloom.html "Global EMI Shielding Market Significantly Hit By Lack Of Consumer Demand; Scenario Post Covid-19 Crisis Likely To Remain Gloom") Some indicators justify his concerns. VAT receipts, which reflect consumer spending, fell 54% in April year on year, the Kommersant daily said, citing preliminary [finance ministry data](https://www.financedigest.com/the-four-pillars-of-data-integrity-what-finance-businesses-need-to-know.html "The four pillars of data integrity: what finance businesses need to know"). Economy Minister Maxim Reshetnikov said on [Friday there was a “demand crisis”](https://www.financedigest.com/cost-of-living-crisis-casts-shadow-over-europes-black-friday.html "Cost-of-living crisis casts shadow over Europe’s Black Friday") in business and consumer spending. Russia has stopped publishing most data on financial flows, but figures compiled by the [Bank of Finland based on local customs](https://www.financedigest.com/christmas-debt-hangovers-how-banks-can-help-customers.html "CHRISTMAS DEBT HANGOVERS: HOW BANKS CAN HELP CUSTOMERS") data show imports have plunged – and not just from the West. Chinese [exports to Russia were down by a quarter in April and shipments](https://www.financedigest.com/swiss-gold-exports-to-china-slow-but-shipments-to-turkey-surge.html "Swiss gold exports to China slow but shipments to Turkey surge") from Vietnam, South Korea, Malaysia and Taiwan more than halved, the bank said. The [economy minister said manufacturers were re-establishing supply chains broken by sanctions and said 2,000 “backbone companies” could access preferential lending](https://www.financedigest.com/china-steps-up-easing-cuts-lending-benchmarks-to-revive-faltering-economy.html "China steps up easing, cuts lending benchmarks to revive faltering economy") programmes. But [inflation is still at its highest](https://www.financedigest.com/russian-inflation-accelerates-to-7-61-m-m-in-march-highest-since-1999.html "Russian inflation accelerates to 7.61% m/m in March, highest since 1999") in two decades at more than 17%. That means a 10% hike in [pensions and the minimum wage](https://www.financedigest.com/pensions-awareness-day-could-you-get-by-on-less-than-living-wage.html "Pensions Awareness Day: Could you get by on less than living wage? ") announced by Putin still leaves many facing a cut in household incomes in real terms. [Rising prices](https://www.financedigest.com/oil-prices-rise-after-opec-keeps-output-steady-russian-price-cap-imposed.html "Oil prices rise after OPEC+ keeps output steady, Russian price cap imposed") may not be Russia’s biggest problem. The strong rouble has already brought down weekly inflation sharply, but it won’t fend off a broader [threat to economic output from Russia’s](https://www.financedigest.com/japan-bans-chemical-weapons-related-goods-to-russia-concerned-by-nuke-threats.html "Japan bans chemical weapons-related goods to Russia, concerned by nuke threats") increasing isolation. Reshetnikov said there were “fears that we could break into a deflationary spiral, when a reduction in money in the [economy leads to a reduction in production](https://www.financedigest.com/why-building-new-products-for-a-circular-economy-is-essential-if-we-are-to-preserve-the-earths-finite-resources.html "Why building new products for a circular economy is essential if we are to preserve the Earth’s finite resources"), lower prices, and so on. Meanwhile, financing a military campaign in [Ukraine will put pressure](https://www.financedigest.com/analysis-war-in-ukraine-puts-pressure-on-east-european-banks-to-prop-up-sinking-currencies.html "Analysis-War in Ukraine puts pressure on East European banks to prop up sinking currencies") on the budget. [Finance Minister](https://www.financedigest.com/uks-finance-minister-sets-out-new-economic-approach-to-finance-bosses.html "UK’s finance minister sets out new economic approach to finance bosses") Anton Siluanov said on Friday that Moscow required “huge financial resources” for what Moscow calls its “special military operation. STIMULUS Russia has already dipped into its National [Wealth Fund](https://www.financedigest.com/norway-wealth-fund-employee-sues-for-workplace-gender-discrimination.html "Norway wealth fund employee sues for workplace gender discrimination"), which has about $110 billion of liquid assets, to support spending, which is up 22% this year, the economy minister said. The [finance minister](https://www.financedigest.com/uk-finance-minister-hunt-to-make-statement-at-1000-gmt-source.html "UK finance minister Hunt to make statement at 1000 GMT – source") said Moscow had earmarked 8 trillion roubles ($123 billion) of stimulus for “the current circumstances”, although it was not clear how much of that was new money and over what period. The full [impact on economic](https://www.financedigest.com/dollar-skids-after-soft-u-s-economic-data-impact-of-opec-cuts-fades.html "Dollar skids after soft U.S. economic data; impact of OPEC+ cuts fades") output and jobs from the withdrawal of Western firms, ranging from carmakers to banks, has yet to seen. Sergei Guriev, economics professor at France’s Sciences Po, [expected the impact to be felt more sharply in the next](https://www.financedigest.com/suedzucker-expects-to-raise-its-sugar-prices-again-next-year.html "Suedzucker expects to raise its sugar prices again next year") few months. The real pain has not started yet as some exiting companies are still paying [wages and some companies continue](https://www.financedigest.com/volkswagen-strikes-below-inflation-wage-deal-continues-german-trend.html "Volkswagen strikes below-inflation wage deal, continues German trend") production using their inventories of imported parts,” said Guriev, who is also a former chief economist at the European Bank for Reconstruction and Development. Morgan Stanley economists [see a 13% drop in household consumption in 2022 and a 23% fall](https://www.financedigest.com/uk-employers-see-slight-fall-in-pay-awards-over-2023-xperthr.html "UK employers see slight fall in pay awards over 2023 – XpertHR") in investment. The bank’s chief regional economist, Alina Slyusarchuk, said in a note that Russia’s [potential long-term growth rate](https://www.financedigest.com/oil-dips-as-potential-fed-rate-hike-overshadows-falling-stocks.html "Oil dips as potential Fed rate hike overshadows falling stocks") was now just 1%. The outlook appears to be dimming for smaller [Russian firms](https://www.financedigest.com/pizza-firm-dp-eurasia-considers-divestment-of-russian-business.html "Pizza firm DP Eurasia considers divestment of Russian business"), although there is little way to gauge it precisely with so little official data now being published and businesses no longer required to report results. Very few companies want to create a strategy or [plan long-term](https://www.financedigest.com/uae-plans-long-term-economic-ties-with-israel-despite-political-strains.html "UAE plans long-term economic ties with Israel despite political strains"), large-scale contracts right now,” said Anastasia Kiseleva, a partner at a small public relations firm in Moscow. [“Businesses – especially small](https://www.financedigest.com/reasons-to-obtain-iso-9001-certification-for-small-businesses-in-australia.html "Reasons To Obtain ISO 9001 Certification For Small Businesses In Australia") ones – will be engaged in pure survival, not developing or creating anything new. Survival-mode, however, is nothing new to many Russians, who have lived through several deep crises since the collapse of the Soviet Union in 1991. The worst is ahead of us,” said Yevgeniy Sheremetov, who [runs a tour company](https://www.financedigest.com/elon-musk-who-runs-four-other-companies-will-now-be-twitter-ceo.html "Elon Musk, who runs four other companies, will now be Twitter CEO") near Lake Baikal in Siberia. “But residents of this country are used to difficulties. I have my summer house, with potatoes and cucumbers. After the 1990s, nothing can scare me.” (Additional reporting by Marc Jones in London; Editing by Kevin Liffey and Edmund Blair) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---