Surviving on Grit Without Starbucks or McDonald's: Russia's 'Putinism'

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "If the iPhone 14 is released in September, it will take about a month, so you can get it in October."

Recently, an employee at a mobile phone store on Tverskaya Square in Moscow, Russia, responded this way to a reporter from the British daily The Guardian who asked if the iPhone 14 was available for purchase. According to The Guardian's report, the store displayed iPhone 13 Pro and Pro Max in Alpine Green color. Alpine Green was a color released after Apple suspended its business in Russia due to the impact of the Ukraine war. Although Western companies have successively withdrawn from Russia following the airstrikes on Ukraine in February, this is a representative case where Russian citizens have not experienced significant inconvenience in their daily lives.

Misguided Forecasts, Putin "Leaves It to Economic Experts"

Six months after the outbreak of the Ukraine war, evaluations continue that Russia's economic situation is holding up better than expected. Despite large-scale sanctions mainly from the US and Europe and the withdrawal of global companies, the damage to Russia's real economy is less than initially anticipated. Based on this, Russian President Vladimir Putin is leading the war while maintaining a high approval rating of 80%.

On the 23rd (local time), six months after the outbreak of the Ukraine war, the British weekly The Economist and the US Washington Post (WP) simultaneously published articles titled "Why the Russian Economy Exceeds Expectations" and "Despite Western Sanctions, the Russian Economy Has Not Yet Collapsed." Although Western sanctions and the successive withdrawal of major companies have dealt some blows to the Russian economy, the collapse is slower in the short term than expected. Although economists' assessments vary somewhat, the early predictions that the Russian economy would rapidly enter a severe recession at the start of the war appear to have been off the mark.

According to the Current Activity Index (CAI), used by investment bank Goldman Sachs to gauge economic direction, Russia's index sharply declined in March and April at the beginning of the war but has since turned to a recovery trend. Recently, the US and German economies have been slowing down. JP Morgan Chase also diagnosed that Russian industrial production in June decreased by 1.8% compared to a year earlier but is not in a severe recession. There is also analysis that after hitting the bottom, electricity consumption is increasing again.

Prices rose significantly from the beginning of the year until the end of May but have since stabilized. This contrasts with the US and European countries that imposed sanctions, which are suffering from severe inflation. Maxim Mironov, an economist at Spain's IE Business School, told WP, "Sanctions have certainly been effective, but much slower than everyone expected six months ago."

The Economist analyzed that one of the reasons Russia has relatively withstood sanctions is that President Putin has completely delegated economic policy to experts and that Russia tried to separate its economy from the West before the war. It also noted that Russia's continued energy sales to Europe support the Russian economy. Accordingly, most economists believe that Europe must reduce energy imports to deliver additional blows to the Russian economy.

Russian Products and Parallel Imports Replace Western Companies' Withdrawal

[Image source=Yonhap News]

One factor slowing the pace of economic collapse is that local companies are taking over and operating businesses of Western companies that withdrew from Russia or filling the gaps by parallel imports. Global food service brands McDonald's and Starbucks closed their businesses in Russia, but local companies acquired them and are operating under the names 'Vkusno i Tochka' and 'Stars,' respectively, just changing the signs.

Also, although products made by Western companies cannot be officially imported through trade routes, they are purchased through detours. For example, iPhones and Spanish clothing brand Zara products are bought through Kazakhstan and sold in Russia with added fees. According to a report by German public broadcaster Deutsche Welle (DW), the Russian government recently estimated the scale of parallel imports in Russia from May to July at $6 billion (about 8 trillion won). This scale is expected to reach $16 billion annually.

CNN reported, "Relatively affluent middle classes are likely to be distant from the war's damage. Casualties in Moscow and Saint Petersburg, which are wealthy and populous in Russia, were relatively low," and explained that economically, President Putin and Russian officials have worked for years to prepare import substitution plans and develop payment systems to avoid financial isolation so that the Russian economy can withstand sanctions.

However, some point out that "talks about the resilience and prosperity of the Russian economy being an economic war of attrition that harms the West are incorrect." Professor Jeffrey Sonnenfeld of Yale University, who has been closely monitoring the withdrawal of companies since the early days of the Ukraine war, pointed out that the Russian economy has suffered serious damage, including △ loss of strategic position as a major exporter in commodity markets △ spread of supply shortages due to trade collapse and import damage △ lack of ability to replace products and labor △ disappearance of foreign investment △ reliance on unsustainable fiscal and monetary policy interventions.

This content was produced with the assistance of AI translation services.