Despite sanctions and Western company withdrawals, the Russian economy surprisingly withstood the impact of the war in Ukraine for over two years. Domestic spending remained robust due to increased defense spending and government-backed loans. The MOEX stock index, after an initial decline, showed a steady recovery. This resilience was achieved despite significantly reduced access to foreign markets and rising inflation. Ultimately, Russian businesses largely adapted to the altered economic landscape.
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Russia recently imposed a 55.65 percent tariff on Chinese furniture parts imported through Vladivostok, impacting approximately 90 percent of such imports. This reclassification, causing a significant price increase for Russian furniture, has prompted concerns about bankruptcies among importers and angered Russian furniture producers reliant on these Chinese parts. The move is particularly perplexing given the strong Russia-China trade relationship and the fact that similar European imports face significantly lower tariffs. The tariff increase has sparked criticism in China, highlighting the unexpected economic friction despite increased bilateral trade.
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Chronic inflation is gripping Russia, creating a vicious cycle fueled by massive pay increases designed to compensate for the immense human and material costs of the ongoing war. This isn’t simply a matter of increased wages driving up prices; the root cause lies in the unsustainable drain on the Russian economy caused by the protracted conflict. The Kremlin’s strategy of pouring vast resources into the military effort, with little demonstrable return, is crippling the nation’s overall economic health. The war’s relentless demand for soldiers, requiring recruitment of approximately 1000 men daily to offset casualties, underscores the staggering scale of this drain.… Continue reading
In a show of support, EU officials visited Kyiv on Sunday, coinciding with the signing of Russia’s 2025 budget by President Vladimir Putin. This budget allocates a record 13.5 trillion rubles (€119 billion), or 32.5 percent, to national defense, a significant increase from the current year’s allocation. The substantial military spending reflects Russia’s continued aggression in Ukraine. This action follows the Russian legislature’s approval of the budget plans in November.
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Recent US sanctions on Gazprombank have caused the Russian ruble to plummet to its lowest level since the beginning of the Ukraine invasion, significantly impacting Russia’s already strained economy. This sharp decline, exceeding a third since August, is fueled by decreased oil prices and increased military spending, which has more than tripled since 2021. The sanctions limit Russia’s access to global finance, hindering its ability to fund the war and receive commodity revenues. While the Russian government claims the volatility is due to external factors and a strong dollar, experts warn of an overheating economy and the difficulties of combating inflation with a weak ruble.
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The Russian ruble plummeted to its lowest point since March 2022, reaching 114 against the dollar, prompting the central bank to intervene and halt foreign currency purchases for the remainder of the year to curb market volatility. President Putin attributed the fluctuations to budget payments and seasonal factors, while Kremlin spokesperson Dmitry Peskov downplayed the impact on ordinary citizens. However, experts like Timothy Ash of BlueBay Asset Management view the weakening ruble as a sign of a worsening economic crisis, exacerbated by new US sanctions on Gazprombank and the ongoing war in Ukraine. This economic decline is characterized by high inflation, despite interest rate hikes, and is further complicated by the government’s increased defense spending.
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To mitigate the ruble’s slide to its lowest level since the 2022 Ukraine invasion, the Central Bank of Russia announced a suspension of foreign currency purchases on the domestic market until the end of 2024. This decision, extending a previous suspension, aims to stabilize financial markets. These purchases will be postponed until 2025, while the bank will continue selling currency from its sovereign wealth fund to manage the situation. The ruble’s devaluation, while potentially beneficial for exports, also risks increasing inflation.
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The Russian ruble has fallen to its lowest level against the US dollar since the beginning of the Ukraine invasion, reaching 107 rubles per dollar—a two-year low. This significant depreciation is attributed to ongoing sanctions impacting the Russian economy, particularly the recent targeting of Gazprombank, hindering international payments and further reducing gas export revenue. The upcoming holiday season is expected to exacerbate the situation, increasing import demand and putting additional pressure on the ruble. While a weaker ruble may benefit exports, the resulting high inflation (currently 8.5 percent) and the Central Bank’s attempts to counteract it through interest rate hikes are proving insufficient to stabilize the currency.
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Russia’s escalating inflation, reaching 7.4% year-to-date, is causing a ruble devaluation and impacting food prices dramatically; potato prices are up 350% since December. This has led to numerous cancelled fruit and vegetable import contracts from Turkey, Egypt, and Iran, as exporters demand price adjustments to offset currency risks. The Central Bank’s attempts to control inflation through interest rate hikes have proven largely ineffective, further jeopardizing the Russian economy. The combination of inflation and currency instability represents a critical economic challenge.
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A recent robbery at a Yekaterinburg food store, where thieves stole 20kg of butter alongside cash, highlights soaring food prices in Russia. The incident underscores the increasing value of essential goods, with butter prices up 30% since December 2023. This reflects broader inflationary pressures, with Russia’s October inflation rate at 8.5%, prompting the central bank to raise interest rates to combat the issue. Despite these measures, food prices, particularly for dairy, continue to rise sharply.
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John Q. Hosedrinker 
Matt Underwood