Economist Predicts Severe Recession for Russia by 2025 Due to Sanctions

Russia may be on the verge of a severe recession within a year, according to predictions by Yuriy Gorodnichenko, an economist at the University of California, Berkeley. The global sanctions imposed on energy and consumer goods following the invasion of Ukraine are significantly impacting the Russian economy, despite President Putin's assurances that the situation is under control.

Gorodnichenko attributes the anticipated economic downturn to two main factors: the decline in revenues from oil and gas sales and the reduction in the influx of US dollars from the trade of consumer goods, including alcoholic beverages. Last year, Moscow's oil and gas sales dropped by 24%, reaching a three-year low as a result of Western sanctions. This slump in sales mirrors what happened in the Soviet Union when it lost access to oil revenues, leading to an economic collapse within five years. However, Gorodnichenko notes that the modern Russian economy is less self-sufficient than the Soviet one, potentially accelerating the deterioration this time.

Moreover, Russia faces a deficit of 1.59 trillion rubles ($18 billion) this year due to the substantial budget allocated for the war. These factors, coupled with ongoing sanctions on the trade of everyday consumer goods, could push Russia into a deep recession by 2025.

Russia's attempts to "de-dollarize" its trade and establish alternative payment systems with its allies are steering the country towards economic hardship, as it continues to import virtually everything, from automobiles and furniture to food, beverages, and other consumer goods.

Despite this situation, the Kremlin continues to take stringent measures, such as doubling import taxes on spirits, including Scotch whisky from the UK, starting in August. It is also considering imposing a 200% tariff on wine imports from NATO member states.

In the beverage sector, many major companies have ceased trading with Russia in support of Ukraine. Companies like Pernod Ricard, Heineken, Carlsberg, and Bacardi have stopped their operations in the country, though the process has been complicated for some, especially Bacardi. However, not all companies have been transparent about their exit from the Russian market, with some continuing to trade using Latvia as an intermediary to obscure their links.

As the supply of alcoholic beverages in Russia has decreased, demand has surged significantly. The psychological strain caused by the pandemic and the war between Russia and Ukraine has led to an increase in alcohol consumption. In 2023, per capita alcohol consumption in Russia reached a nine-year high, with eight liters per person annually, and it may be even higher. According to Evgeny Andreev, a lead researcher at the Demographic Research Center of the Russian School of Economics, per capita sales of absolute alcohol are growing, indicating increased consumption in response to hardships.

In Ukraine, the demand for spirits has also risen since the war began, with a notable increase in gin consumption.

These trends underscore the broader economic challenges facing Russia as it navigates the complex landscape of global sanctions and internal economic pressures. The coming years will be crucial in determining whether the nation can mitigate these challenges or if it will indeed face the severe recession forecasted by experts.