Russia’s economy is unraveling: consumers are starting 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 the wave of retaliatory sanctions from the West. Three months later, the 46-year-old finds that her 20 years of high-level sales experience mean little in a war-torn corporate world.

“There is no demand. To be honest, I’m horrified,” Klyueva said, describing business in Russia as “frozen” while Western businesses “disappeared” from the country. “I have two children, I have unpaid loans, I have unfinished construction work. . . and I’m sitting at home cooking borscht like a fool.

Its experience of a changing labor market is an indicator of how Western sanctions and trade embargoes are slowly seeping into Russia’s economy – leading to store closures and disrupted supply chains – despite best efforts. of President Vladimir Putin to protect the country from the effects of the war on Ukraine.

In a country where a large proportion of workers are employed by the state and where increases in pensions and the minimum wage were recently approved, most Russians have not seen dramatic changes in their daily lives. Sustained oil and gas export revenues have also empowered the Kremlin to offer incentives to the private sector to lay off rather than lay off workers. Unemployment has remained at around 4%, avoiding the spikes seen during the pandemic. And inflation, which hit a two-decade high of 17.8% in April, has begun to slow.

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

“Food prices have gone up, yes, but in general not much has changed,” said Tatiana Mikhailova, an economist and academic living in the capital. If you don’t turn on the news, “you could quite easily feel like nothing is happening at all,” she said, adding that it makes the situation “absurd.”

However, a succession of indicators provides a barometer of the changes that are beginning to appear.

Vacancies are one. Although unemployment figures remained broadly stable, online recruitment platform HeadHunter found that the number of advertised job vacancies fell by 28% in April compared to pre-war February. Job postings in marketing, public relations, human resources, management and banking have fallen by 40-55%.

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“There are so many highly qualified people in the market right now. The competition for a position is out of this world,” Klyueva said.

Economists predict a tougher job rush. The number of furloughed people rose from 44,000 in early March to 138,000 in mid-May, officials said, and the number of workers furloughed part-time also increased.

The change is perhaps most visible in shopping districts and malls across Russia. In Moscow, stores selling foreign brands account for about 40% of retail space in major malls, according to commercial real estate consultancy ILM. Many of these stores are closed after these brands cut their ties with Russia. About 15-20% of stores in Moscow malls are now closed, according to Knight Frank Russia.

People walk past a closed Bulgari store

Western sanctions appear to have had their greatest impact in shopping districts and malls across the country © Yuri Kochetkov/EPA/Shutterstock

By the end of the year, up to 20% of all Moscow offices could also be vacated, ILM said, mainly due to the departure of Western companies.

These effects are not so evident across the country. Mara Kanakina, a personal stylist from Volgograd in southern Russia, said she was shocked when she visited Moscow last week. “I walked along Stoleshnikov Lane,” Kanakina said, referring to one of the capital’s most glamorous central streets, “and pretty much everything was closed.”

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

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Suppliers stopped dealing with Russian customers. Visa and Mastercard left the country, meaning she couldn’t make international card transactions. Delivery logistics collapsed. “I was banging my head against the wall so badly that I punched a hole,” she said.

Now she relies on middlemen in countries like Georgia and Kazakhstan to order and receive Western-branded items and dubs herself the “sanctions fairy”.

“I know I can get my hands on anything,” she says, “but it will take time and patience” to organize the new logistics.

The lack of imported goods modifies other consumption habits. Imported wine accounted for 40% of the Russian market in 2021, or 370 million liters. The wine shelves now seem emptier, Mikhailova said.

And with smartphone market leaders Samsung and Apple cutting ties with Russia, imports have plummeted. By contrast, analytics firm GS Group says imports of old-fashioned “brick” phones soared 43% in the first quarter.

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It’s hard to say exactly how much imports have fallen, as Russian authorities have stopped releasing figures. But using data from 20 of Russia’s biggest trading partners instead, economists at the Institute of International Finance estimated imports in April fell 50% from the same month a year earlier.

Data on VAT collections on domestic goods show how consumption is starting to fall and economic activity is declining. According to the Ministry of Finance, VAT receipts fell by 54% in April compared to the previous year.

“These are just the first minor changes,” Mikhailova said. Economists expect turbulent times, including a contraction in GDP of up to 10% and unemployment that will more than double by the fall.

This could affect discretionary spending for things like vacations. According to data from recruitment platform SuperJob, 35% of Russians say they cannot afford to take a week’s vacation this year, up from 30% last year.

Another of those facing an uncertain labor market is Maria Barabanova. The marketing expert from Moscow led sales in Russia for a German beauty tech company. But since early May, the 37-year-old has been looking for a new job because there are no products to market.

“There are no more imports, unfortunately,” she said. “Our Moscow exhibitions have been cancelled. . . We have no equipment to demonstrate.

Additional reporting by Valentina Romei in London

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