Russians starting to feel impact of war on their lives: civilians are cutting back on food spending, enterprises are facing problems, - Bloomberg
Russian dictator Vladimir Putin's war is about to enter its fourth winter, and Russians are feeling its impact on almost every aspect of their daily lives.
According to Censor.NET, Bloomberg reports on this.
Dozens of regions in central and southern Russia are facing the immediate consequences of the war: drones and sometimes missiles strike energy facilities and residential buildings.
"Beyond the front lines, the rest of Russia, Moscow included, has started to feel the economic toll. From households cutting back on food spending to struggling steel, mining and energy companies, the country’s economic engine is showing multiple fractures, and the earlier resilience spurred by massive fiscal stimulus and record energy revenues is being tested," the publication notes.
At the same time, Bloomberg emphasises that the degree of suffering is incomparable to that experienced by Ukraine. However, it highlights the growing costs that Putin is incurring for his decision to launch a full-scale invasion in February 2022.
US pressure on Russia's economy
The consequences of the war are being felt against the backdrop of active pressure from the United States, which is limiting Moscow's oil and gas revenues. Negotiations on a ceasefire and easing of sanctions are being conducted behind the scenes between Washington and the Kremlin.
Bloomberg notes that Russia's gross domestic product previously grew thanks to investments in the military sector, which led to an increase in wages of almost 20% in 2024, stimulating consumer demand but at the same time contributing to inflation.
In October 2024, Russia's Central Bank raised interest rates to a record 21% to cool inflation, but the economy is increasingly feeling the delayed impact of tight monetary policy. A country that has refocused on war but continues to support the civilian sector of the economy has revealed deeper imbalances.
In early November, inflation fell to around 6.8%, but this is due to weakening consumer demand. Russians are cutting back on food spending, according to SberIndex, Sberbank's data platform that tracks income, spending and business activity in real time.
According to the Kommersant newspaper, sales of milk, pork, buckwheat and rice fell by 8-10% in September and October. X5 Group, Russia's largest grocery chain, reported revenue growth largely due to inflation, but net profit fell by almost 20%, reflecting weak demand and high costs.
The crisis in retail trade and industry
The retail sector is experiencing serious turmoil: in the third quarter, 45% of closed stores were fashion stores, with almost every second store closing. The electronics market is experiencing its sharpest drop in demand in 30 years as shoppers postpone major purchases.
Car sales fell by almost a quarter in the first nine months of the year due to high borrowing costs and an increase in the state processing tax, which led to higher prices for imported and electric cars.
Ukraine's military actions are also having a direct impact: Ukrainian drones are attacking oil refineries and ports from the Black Sea to the Baltic coast, sometimes reaching targets in Siberia.
These strikes have exacerbated the crisis in the domestic fuel market, causing prices to spike since the end of August. Although prices fell slightly in November, they remain high and shortages persist in some regions.
Analysts expect moderate economic growth, but the Centre for Strategic Studies in Moscow concluded on 18 November that "there is almost no chance left to avoid a recession," as production has fallen in more than half of all industries.
Steel industry: steel consumption fell by 14%; in construction - by 10%, in mechanical engineering - by 32%. The coal industry is experiencing its worst period in the last decade.
Banking sector: the share of non-performing corporate debt rose to 10.4%, and in retail trade - to 12%. Economic growth slowed to 0.6% in the third quarter, and the budget deficit reached 1.9% of GDP in October.
By the end of the year, the Ministry of Finance expects the deficit to increase to 2.6% of GDP. Crucial oil and gas revenues in January-October fell by more than 20% compared to the same period last year, to 7.5 trillion roubles.
Sanctions and budgetary pressure
In October, the US imposed sanctions on leading Russian oil companies "Rosneft" and "Lukoil", further exacerbating financial pressure. Putin is trying to persuade the US not to increase sanctions while continuing to pursue his military goals.
Without a deal, fuel supplies in the first half of November fell to their lowest level since the invasion of Ukraine began. Trade with China has also slowed.
In response to the growing deficit, the government is increasing domestic debt and introducing new taxes:
- increase in VAT and expansion of the tax base;
- technological levy on electronic components;
- increase in tax on car purchases.
After Putin's promise not to raise taxes in 2023, the Kremlin ordered the media to avoid mentioning his name in reports about the new levies, Meduza reports.
