Weak Russian economy: Consumers begin to feel the pinch of sanctions

Natalia Klyueva began her search for a new job in Moscow in February — just before Russia’s invasion of Ukraine and a wave of retaliatory Western sanctions. Three months later, the 46-year-old found that her 20 years of senior sales experience meant nothing in a corporate world changed by war.

“There’s no demand. Honestly, I’m horrified,” said Klyueva, who described Russian operations as “frozen” and Western companies “disappearing” from the country. “I have two kids, I have outstanding loans, and I have unfinished construction work. . . I sit at home and cook borscht like a fool.”

Her experience with the changing job market is an indicator that sanctions and Western business embargoes are slowly seeping into the Russian economy – bringing closed stores and disrupted supply chains – despite President Vladimir Putin’s efforts to protect the country from Affected by war in Ukraine.

In a country where the majority of workers are employed by the state, and which has recently approved raising pensions and minimum wages, the daily lives of most Russians have not undergone dramatic changes. Strong earnings from oil and gas exports also give the Kremlin a way to encourage the private sector to furlough workers rather than lay them off. Unemployment has remained around 4%, avoiding the peak seen during the pandemic. Inflation, which hit a two-year high of 17.8 percent in April, has begun to slow.

Shoppers at a convenience store in Moscow

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

“Grocery prices have gone up, yes, but overall, not much has changed,” said Tatiana Mikhailova, an economist and academic who lives in the capital. If you don’t turn on the TV news, “you can easily give the impression that nothing happened”, she said, adding that it made the situation “ridiculous”.

Still, a range of indicators provides a barometer of the changes that are starting to emerge.

Vacancy is one of them. While unemployment figures have remained largely steady, online recruiting platform HeadHunter found that the number of jobs advertised in April fell 28% compared to February before the war. Job advertisements in marketing, PR, HR, management and banking fell by 40% to 55%.

“There are a lot of high-quality people in the market right now. The competition for a position is off the charts,” Klyueva said.

Economists predict that the competition for jobs will intensify. The number of furloughs rose from 44,000 in early March to 138,000 in mid-May, and the number of part-time workers also increased, according to officials.

The changes may be most pronounced in Russia’s shopping districts and malls. In Moscow, stores selling foreign brands account for about 40 percent of the retail space in shopping malls, according to commercial real estate consultancy ILM. Many of these stores closed after the brands cut ties with Russia. According to Knight Frank Russia, about 15% to 20% of stores in Moscow malls are now closed.

People walk past a closed Bulgari store

Western sanctions appear to have had the biggest impact on the country’s shopping districts and malls © Yuri Kochetkov/EPA/Shutterstock

ILM said 20% of all office space in Moscow could also be vacated by the end of the year, largely due to the departure of Western companies.

The effects are less pronounced across the country. Mara Kanakina, a personal stylist from Volgograd in southern Russia, said she was shocked when she visited Moscow last week. “I was walking down Stoleshnikov Alley,” Kanakina said, referring to one of the capital’s most charming central streets, where “almost everything is closed.”

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

Supplier stopped dealing with Russian customers. Visa and Mastercard are out of the country, which means she can’t make international card transactions. Delivery logistics fell apart. “I banged my head against the wall so much that I knocked a hole in the wall,” she said.

She now relies on middlemen in countries such as Georgia and Kazakhstan to order and receive goods from Western brands, and calls herself the “sanction fairy.”

“I know I can get anything done,” she said, “but arranging new logistics takes time and patience.”

The lack of imported goods is changing other consumption habits. By 2021, imported wine will account for 40% of the Russian market, or 370 million liters. Mikhailova said the wine racks now look emptier.

Imports fell as smartphone market leaders Samsung and Apple severed ties with Russia. In contrast, analyst firm GS Group said imports of older “brick” phones surged 43% in the first quarter.

Since Russian authorities have stopped publishing data, it is difficult to say exactly how much imports have fallen. But using data from Russia’s 20 largest trading partners, economists at the Institute of International Finance estimated that imports fell 50 percent in April compared with a year earlier.

Data on domestic value-added tax collection on goods shows the extent to which consumption has begun to decline and economic activity has fallen. According to the Ministry of Finance, value-added tax revenue fell by 54% in April compared with last year.

“These are just the initial small changes,” Mikhailova said. Economists expect turbulent times to come, including a GDP contraction of as much as 10 percent and unemployment more than doubling by the fall.

That could hit discretionary spending like holidays. According to recruitment platform SuperJob, 35 percent of Russians say they cannot afford a one-week vacation this year, up from 30 percent last year.

Another person facing an uncertain job market is Maria Barabanova. A Moscow-based marketing specialist leads sales in Russia for a German beauty technology company. But the 37-year-old has been looking for a new job since early May — because no product has hit the market.

“Unfortunately, there are no more imports,” she said. “Our Moscow fair has been cancelled. . . there is no equipment for us to show.”

Additional reporting by Valentina Romei in London