President Vladimir Putin has conceded that Western sanctions designed to starve the Kremlin of funds for its invasion of Ukraine could deal a blow to Russia’s economy.
“The illegitimate restrictions imposed on the Russian economy may indeed have a negative impact on it in the medium term,” Putin said in televised remarks Wednesday reported by state news agency TASS.
It is a rare admission by the Russian leader, who has repeatedly insisted that Russia’s economy remains resilient and that sanctions have hurt Western countries by driving up inflation and energy prices.
Putin said Russia’s economy had been growing since July, thanks in part to stronger ties with “countries of the East and South,” likely referring to China and some African countries. He also stressed the importance of domestic demand to the economy, saying it was becoming the leading driver of growth.
Russia’s economy has showed surprising resilience to unprecedented sanctions imposed by the West, including an EU ban on most imports of oil products. Preliminary estimates from the Russian government show that economic output shrank by 2.1% last year — a contraction more limited than many economists initially predicted.
Yet while China has thrown the Kremlin an economic lifeline by buying Russian energy and providing an alternative to the US dollar, cracks are starting to appear.
The Russian government’s revenue plunged 35% in January compared with a year ago, while expenditures jumped 59%, leading to a budget deficit of about 1,761 billion rubles ($23.3 billion).
The World Bank and the Organization for Economic Cooperation and Development are forecasting contractions of 3.3% and 5.6%, respectively, in 2023. The International Monetary Fund expects Russia’s growth to remain flat this year, but for the economy to shrink by at least 7% in the medium term.
In response to Russia’s aggression in Ukraine, Western countries have announced more than 11,300 sanctions since the February 2022 invasion, and frozen some $300 billion of Russia’s foreign reserves.
An outspoken Russian oligarch, Oleg Deripaska, said earlier this month that Russia could find itself with no money as soon as next year.
Separately, Austrian bank Raiffeisen Bank International said Thursday it was looking to sell or spin off its Russian business. In a statement, the bank called market conditions in the country “highly complex” and said it was “committing to further reducing business activity” there.
Raiffeisenbank Russia made just over $2 billion in profit last year. But due to strict local rules, Raiffeisen is unable to take any profits from its Russian business out of the country.
— Rob North and Livvy Doherty contributed reporting.