With a rapidly weakening ruble and fears for the future, Russians rush to shop

Russian ruble coins are seen in this illustration taken February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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March 5 (Reuters) – In glorious sunshine, a long queue of shoppers snaked past an IKEA store near Moscow this week. Similar scenes were repeated across Russia as families rushed to spend their rapidly depreciating rubles at the Swedish retailer leaving the crisis-hit country.

Russians are preparing for an uncertain future characterized by rampant inflation, economic difficulties and even greater pressure on imported products.

The ruble lost a third of its value this week after unprecedented Western sanctions were imposed to punish Russia for invading Ukraine. The measures froze much of the central bank’s $640 billion in reserves and banned several banks from the global payments system SWIFT, leaving the ruble in freefall.

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Russia’s foreign exchange reserves have jumped more than 75% since 2015

Cities across Russia were seemingly calm, with few signs of the devastating crisis in the financial sector and markets. Except for the queues of people looking to stock up on products – mostly high-end items and hardware – before the shelves empty or prices go up further.

“The purchases that I planned to make in April, I urgently bought them today. A friend from Voronezh also told me to buy for her,” Viktoriya Voloshina told Reuters in Rostov, a city ​​located 217 kilometers (135 miles) from Moscow.

Voloshina said she was looking for shelves and office tables, and also shopping for a friend from another city. “My heart is breaking,” she added.

Dmitry, another resident of Moscow, lamented the rapid rise in prices.

“The watch I wanted to buy now costs about 100,000 rubles, compared to 40,000 about a week ago,” he said, declining to give his last name.

But the explosion in spending visible this week could run out of steam.

Although there are no palpable signs of panic, the annihilation of ruble savings and the doubling of interest rates to 20% will weigh on mortgage holders and consumers.

Financial conditions – reflecting the availability of credit in the economy – have tightened sharply this year, which Oxford Economics forecasts will reduce domestic demand by 11% by the end of the year and increase unemployment by 1.9 percentage points in 2023.

Zach Witlin, an analyst at Eurasia Group, notes that sanctions are already hitting consumers via price hikes and disruptions to digital payments.

Although consumers are not directly targeted, “fear and caution exaggerate the impact”, with the exit of foreign brands like IKEA creating a “snowball effect”, he added.

Reuters Charts

IMPORTS TO ISOLATION

Cars, machinery and auto parts accounted for nearly half of Russia’s $293 billion imports last year, according to the Federal Customs Service.

Deep government import cuts in recent years mean 2021 imports remained 7% below 2013 levels, before the first sanctions following Russia’s annexation of Crimea in 2014.

Russian imports and exports

It has also boosted its trade with China, which is the only country to have boosted exports to Russia since 2014.

Reuters Charts

But further declines seem inevitable as the ruble plunges, insurers refuse to cover companies exporting to Russia and shippers move away from Russian ports, whether to export or import.

While only a few Russian companies are targeted by the sanctions, “all of them will feel the chilling effect,” said Matt Townsend, sanctions partner at law firm Allen & Overy. “That’s why sanctions are a very effective measure to isolate a country.”

The immediate economic shock will lead to a 35% contraction in GDP in the second quarter and a 7% decline in 2022, JPMorgan predicted. But “increasing political and economic isolation will reduce Russia’s growth potential in the years to come,” he added.

That could happen if the restrictions “limit the acquisition of technology needed to support higher-value Russian industries,” RBC Global Asset Management warned.

The Biden administration is preparing rules to limit Moscow’s ability to import smartphones, aircraft parts and auto components read more .

But multinationals, from tech firms Apple and Microsoft to consumer goods producers Nike and Diageo, have severed ties with Russia, meaning shoppers will have limited access to the consumer goods they’ve grown accustomed to for more than a decade. three decades.

Chinese companies, which have been staying put so far, could take market share, but they could also fall prey to secondary sanctions because many of their products, such as smartphones, use American-sourced technology.

Some Russians don’t stay to find out. Lidia, a self-employed worker from Rostov, said money transfer restrictions made it difficult to receive payments from abroad.

“The sanctions have hit me very hard. The prices have already gone up by about 20%… It’s a fact that you can’t afford certain drugs already. Things are going to get worse,” she said .

“Today my family and I are leaving Russia.”

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Written by Ira Iosebashvili and Sujata Rao

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