The West sought to undermine the Russian economy. It didn’t work.

After Russia’s invasion of Ukraine, about 1,000 multinationals withdrew from Russia. Western countries have imposed tough sanctions on Russia’s financial sector. And thousands of businesses and consumers stopped buying Russian products.

As a result, the Russian economy is shrinking, but unemployment has actually fallen since the war began.

Why have Western campaigns failed to completely destroy the Russian economy?

Start with high energy prices. Russia is a huge exporter of oil and gas, and the price hike, driven in part by the invasion, has pushed billions of dollars into the economy. The Russian government uses energy revenues from the European Union (almost $100 billion from March to July, according to International Energy Agency estimates) to fund the war and subsidize everyday Russians. is pouring in. Of this, about $10 billion was spent on “defense” in April alone, according to Russia’s monthly state budget.

The Russian government has also done some neat footwork to keep the economy going. Initially, he raised the interest rate to 20% after the invasion to prevent capital from leaving the country. More recently, the interest rate was cut to 8% as the inflation outlook improved and the ruble strengthened.

Over time, Western sanctions, especially those that prevent Russia from importing modern weapons systems and technology needed for modern factories, could wear down the economy. But so far Russia is doing well and many citizens feel no pain from the sanctions.

The unemployment rate in Russia remained at 3.9% in July and June, up from 4.4% at the beginning of the year. There are 350,000 fewer unemployed people than in January, according to data from the Russian government’s National Statistics Service.

The Russian labor market differs from a typical capitalist economy. Maxim Mironov, who left Russia a few years ago and is now an associate professor of finance at his IE business school in Madrid, says employment trends are often irrelevant to larger economic trends.

Just think: After the collapse of the Soviet Union, Russia’s Gross Domestic Product fell by 14.5% in 1992. The unemployment rate remained at just 5.2%. By comparison, the U.S. unemployment rate was 14.8% in the month after Covid-19 hit markets and plunged the economy into a brief recession.

Russia’s relatively stable job market is under pressure from the Kremlin to keep staff on hand, even in a pinch. Instead, companies are adjusting labor costs by cutting wages, salaries and bonuses, said chief economist Dmitry Polevoy of Moscow-based bank Locko-Invest.

Take a look at the Izhevsk Automobile Plant operated by the state-owned AvtoVAZ (AVAZ). After the invasion of Ukraine, AvtoVAZ reduced its working hours to four days a week. In July, the union issued an open letter saying the factory had been out of operation for more than five months due to a shortage of imported parts. I’m painting the wall during the payroll.

The company launched a mass layoff last month, offering employees the chance to find work elsewhere within the company or leave on a one-time payment after shareholder French automaker Renault (RENA) sold its stake. He stressed that he had no plans.

“No one wants to have problems with the government,” Mironov said.

Also helping keep Russians employed are local investors who have swooped in to buy the operations of global companies with the intention of closing stores. These local owners are risking cutting staff at a time when qualified workers are leaving the area en masse and population growth is declining.

Take advertising firm Dentsu International (Ticker: DNTUY).


announced its withdrawal from Russia in March. Dentsu announced in August that it had agreed to sell its Russian business to a local investor.

This planned ownership transfer was maintained 24-year-old Elizaveta Beshanova from Moscow lost her job as a senior media planner after being promoted to the position just a few months ago. However, some of her colleagues have been laid off in the past few months, she said.

“They openly told us that advertising is bad.” Beshanova said Barons.

The new owner of another advertising firm, GroupM, is the former WPP (


) subsidiaries have also implemented layoffs in the past few months. WPP sold its business to existing local management earlier this year.

Dentsu declined to comment. WPP and Group4Media (formerly GroupM in Russia) did not respond to requests for comment. of Baron.

Another 24-year-old group head of GroupM’s MediaCom was fired in June. She says she has sent over 100 of her applications for jobs outside Russia. “I don’t want to build a career here. [in Russia and] If I have children, I don’t want them to grow up here,” she said. Baronsexpressed opposition to the aggression of Ukraine.

But in late July, she put her sights abroad aside and joined a Moscow-based multinational technology company as a digital advertising specialist. “I needed the money to pay her bills,” she said.

In contrast, Russian tech workers have found their skills in demand abroad. In April, the Russian Telecommunications Association announced that as many as 70,000 technical workers had left the country since the invasion of Ukraine.

29-year-old British tutor Kirill Voronin left Moscow with his wife and 1.5-year-old daughter to avoid being punished for opposing the war. He first moved to Armenia, then stayed in a hotel in Tbilisi, Georgia and went about his life with 12 pieces of luggage.

The move was difficult, but Voronin, whose tuition costs about $35, had no trouble finding new students. Now he teaches his 11 Russian-speaking students, whereas before the move he had eight. “Many Russians … want to find a job in an international company. [and] They all want to learn English,” he said.

The Russian economy is shrinking. According to economists surveyed by FactSet, gross domestic product is expected to fall 7% this year, as opposed to her 4.7% growth in 2021. Russia’s car production in May fell by 97% compared to the same month last year, according to Rosstat.

Ultimately, many Russians worry about their future in an isolated country with a shrinking economy. “Since this spring, we have applied to up to 300 places,” she said Beshanova. Most of her applications were for her work outside Russia.

Please contact Karishma Vanjani at [email protected]

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