Russia’s fraying economy: consumers start to feel the pinch of sanctions

Russia’s fraying economy: consumers start to feel the pinch of sanctions

Natalia Klyueva started her hunt for a new Moscow job in February — just before Russia’s invasion of Ukraine and the west’s wave of retaliatory sanctions. Three months later, the 46-year-old is finding that her 20 years of high levels sales experience mean little in a corporate world transformed by war.

“There is no demand. To be honest, I’m horrified,” Klyueva said, describing business in Russia as “frozen” while western firms have “melted away” from the country. “I have two children, I have unpaid loans, I have unfinished construction work . . . and I’m sitting at home, cooking borscht like a fool.”

Her experience of a changed job market is one indicator of the way sanctions and western business embargoes are slowly filtering into the Russian economy — bringing shuttered shops and disrupted supply chains — despite President Vladimir Putin’s efforts to shield the country from the effects of the war on Ukraine.

In a country where a large proportion of workers are employed by the state, and with recently approved pension and minimum wage hikes, most Russians have not experienced dramatic changes to daily life. Buoyant revenues from oil and gas exports have also given the Kremlin the means to offer incentives to the private sector to furlough, rather than lay off, workers. Unemployment has remained at around 4 per cent, avoiding the spikes seen during the pandemic. And inflation, which reached a two-decade high of 17.8 per cent in April, has begun to slow.

The cost of groceries has gone up but there are few shortages © Maxim Shipenkov/EPA/Shutterstock

“Prices on groceries have gone up, yes, but in general, not much has changed,” said Tatiana Mikhailova, an economist and academic living in the capital. If you don’t switch on the television news, “you could quite easily get the impression that nothing is happening at all”, she said, adding that this made the situation feel “absurd”. 

Still, a succession of indicators provide a barometer of the changes that are starting to appear.

Vacancies are one. Though unemployment figures have remained broadly stable, online recruitment platform HeadHunter found that the number of jobs advertised has fallen 28 per cent in April compared to the prewar month of February. Job ads in marketing, PR, human resources, management and banking have fallen between 40 and 55 per cent.

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“There are so many highly qualified people on the market right now. Competition for a post is off the charts,” Klyueva said.

Economists predict a tougher scramble for jobs. The number of people on furlough rose from 44,000 in early March to 138,000 as of mid-May, according to officials, and the number of workers put on part-time hours has also gone up.

Change is perhaps most visible in Russia’s shopping districts and malls. In Moscow, stores selling foreign brands make up around 40 per cent of retail space in large malls, according to commercial real estate consulting firm ILM. Many of those shops are closed after those brands cut ties with Russia. Around 15-20 per cent of shops in Moscow’s malls are now closed, according to Knight Frank Russia.

People walk past a closed Bulgari store
Western sanctions seem to have had their biggest impact in the country’s shopping districts and malls © Yuri Kochetkov/EPA/Shutterstock

By the end of the year up to 20 per cent of all of Moscow’s office space may also be vacated, ILM said, mainly due to the departure of western firms.

Those effects are not so apparent country-wide. Mara Kanakina, a personal stylist from Volgograd in Russia’s south, said she was shocked when she visited Moscow last week. “I walked along Stoleshnikov lane,” Kanakina said, referring to one of the capital’s more glamorous central streets, “and just about everything was closed.”

As an independent entrepreneur, Kanakina has also been affected by shortages of imported parts or supplies. She sourced clothes and accessories from foreign fashion designers and western brands for clients across Russia — but on the day of the invasion, “all of Europe closed”, she said.

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Suppliers stopped dealing with Russian customers. Visa and Mastercard quit the country, meaning she could not make international card transactions. Delivery logistics fell apart. “I was hitting my head against the wall so much I knocked a hole through it,” she said.

Now she relies on middlemen in countries such as Georgia and Kazakhstan to order and receive western branded items and calls herself the “sanctions fairy”.

“I know I can get my hands on anything,” she said, “but it’ll take time and patience” to arrange the new logistics.

The lack of imported goods is changing other consumer habits. Imported wine made up 40 per cent of the Russian market in 2021, or 370 million litres. Wine shelves are now looking emptier, said Mikhailova.

And with smartphone market leaders Samsung and Apple cutting ties with Russia, imports have dropped. In contrast, analytics firm GS Group says imports of old-style “brick” phones have soared 43 per cent in the first quarter.

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Exactly how far imports have dropped is hard to say, as Russian authorities have stopped publishing figures. But using data from 20 of Russia’s biggest trading partners instead, economists at the Institute of International Finance have estimated that imports in April fell 50 per cent compared to the same month the previous year.

Data on VAT collections on domestic goods show the degree to which consumption is beginning to fall and economic activity decline. According to the finance ministry, VAT revenues fell 54 per cent in April compared to the previous year.

“These are just the first, minor changes,” said Mikhailova. Economists expect turbulent times to come, including a GDP contraction of up to 10 per cent, and unemployment more than doubling by the autumn.

That could hit discretionary spending on things like holidays. According to data from recruitment platform SuperJob, 35 per cent of Russians say they cannot afford to take a week-long holiday this year, up from 30 per cent last year. 

Another of those facing an uncertain jobs market is Maria Barabanova. The marketing expert in Moscow led sales in Russia for a German beauty technology firm. But since the start of May, the 37-year-old has been looking for a new job — because there are no products to market.

“There are no more imports, unfortunately,” she said. “Our Moscow expos have been cancelled . . . There’s no equipment for us to demonstrate.”

Additional reporting by Valentina Romei in London

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