Russia's economy in crisis: sanctions force drastic cuts!

Russia's economy in crisis: sanctions force drastic cuts!

Russia's economy is under significant pressure from new Western sanctions, particularly from the United Kingdom, which are significantly restricting profits from oil and gas sales. These economic restrictions have already resulted in a fall in oil and gas prices, resulting in a decrease in revenue for the state budget. According to that Usinger Anzeiger The Russian government is forced to reduce investments in several key industries.

In recent months, various sectors have experienced cuts, including aviation, ship manufacturing and high-tech industries. Kommersant magazine reports that the cuts are due to lower oil and gas prices. The Kremlin originally projected revenues of around $70 per barrel of oil, but current prices are now below $50 per barrel.

Cuts in various sectors

The Russian government has announced several significant cuts, broken down as follows:

• Luftfahrt-Entwicklungsprogramm: -22% auf 78,8 Milliarden Rubel (ca. 868,75 Millionen Euro)
• Förderung der High-Tech-Industrie: -46 Milliarden Rubel (ca. 507 Millionen Euro)
• Automobilindustrie: -35 Milliarden Rubel (ca. 385,8 Millionen Euro)
• Transportsektor: -25 Milliarden Rubel (ca. 275 Millionen Euro)

The already weakened industry, especially in the areas of aviation and industrial production, continues to suffer from Western sanctions. In addition, data from the Russian statistics agency Rosstat show a significant dent in economic growth. Long-term sanctions aim to further weaken Russia's economic stability and sustainably reduce investment.

Forecast for the Russian economy

The International Monetary Fund (IMF) recently published its forecasts for the Russian economy and expects growth of 0.7 percent for 2023, an increase of 0.4 percentage points compared to previous estimates. For 2024, however, the estimate was lowered by 0.8 points to 1.3 percent. In 2022, Russia's economy shrank by 2.1 percent.

A comparison with other countries in the euro zone shows that Russia's growth is higher than that of Germany, which is considered to be at the bottom with minus 0.1 percent. Interestingly, the IMF has already raised its forecast for Russia's economy three times in a row, indicating some stabilization despite ongoing sanctions challenges.

In addition, inflation in Russia is estimated at 7.0 percent for 2023 and 4.6 percent for 2024. In the banking sector, there are signs of “toxic loans” due to government support for lending to defense-related companies. In April, profits from oil exports fell 6% from the previous month, while export volumes rose 1%, a further sign of the tight economic conditions.

The geopolitical tensions and the sanctions introduced by the G7 countries, which only allow business with Russian tankers under certain price limits, not only contribute to uncertainty, but also affect the long-term economic prospects for Russia. On May 26, US President Donald Trump even hinted at new sanctions against the country, which could provoke further uncertainty.

For further information on the development of the Russian economy and the current sanctions, take a look at the Statista.