Russian lives 'remain stable' amid conflict

Heavy snowfall blanketed Moscow in mid-December, disrupting traffic, delaying flights and leaving pavements buried in snow across the Russian capital.

In parts of Moscow, snow piled into mounds over 30 centimeters high, something not usually seen until the end of winter in February.

But for the public, winter is no different from before the ongoing conflict with Ukraine, as the authorities did not raise heating fees. In some apartments, room temperatures can be as high as 27 C.

"Life has to go on," Pavel Izmailov, who owns a medical device agency in Moscow, said. His company offers services for foreign medical device registrations in Russia and helps sell those devices to hospitals and rehabilitation centers.

He said most people have continued with life as before, and barely remember the conflict nearly 400 kilometers away from Moscow.

"Prices rose, of course, due to Western sanctions and exits of some foreign companies and logistics enterprises. But basically, I don't see anything different from my life one year ago," he said.

Izmailov has just participated in the 2022 Russian Medical Exhibition, and he met several new potential business partners at the fair.

"If you were at the exhibition, you will be surprised to see so many companies participating and so many buyers from all over Russia," he said.

He also said several rounds of sanctions did hit Russia's economy, but not as much as the West had expected. Some companies, who had claimed to have left Russian markets, eventually stayed on in various forms.

Some companies left Russia under their current names, but transferred their assets to other owners, Izmailov said.

"For instance, French brand L'Occitane returned to Russia by the end of May, under their Russian name, which means 'L'Occitane' in Russian alphabets," he said.

Interesting situation

Another interesting situation that has arisen on the Russian market is that of the Swedish furniture retailer Ikea. The brand, which has successfully sold its products in Russia for several years, announced the suspension of operations in Russia in March.

However, in June, Ikea said it would leave and sell most assets in Russia. But at the same time, the management planned to keep the business related to the operations of its mega shopping malls, which continue to open normally in 11 Russian cities.

Several competitors in Russia at once expressed their willingness to buy Ikea assets. In other words, Ikea turned out to be a promising investment for those investors.

Russia's economic landscape has been drastically influenced since Moscow launched its "special military operation" in Ukraine on Feb 24, triggering sweeping Western restrictions on its energy and financial sectors.

Nevertheless, despite initial dire predictions of a double-digit GDP slump, analysts and officials have gradually been improving forecasts as the Russian economy demonstrated better-than-anticipated resilience.

An average forecast by 15 analysts polled in early December suggested that the Russian economy was on track to shrink by 3.0 percent this year, close to the Russian Economy Ministry's expectation of a 2.9 percent drop. A similar poll in early November had predicted a contraction of 3.5 percent.

But the decline will continue at a similar pace in 2023, with analysts now forecasting a 2.5 percent drop. Over time, economists have acknowledged that the contraction is likely to be less sudden, but more prolonged than first expected.

"The downturn is not as big as we all thought at first, but this does not mean that we can go into next year peacefully," Natalia Orlova, Alfa Bank's chief economist, said. "We cannot rule out a deeper contraction next year when compared with 2022, it could be 5-6 percent."

Russian officials continue to remain optimistic. Prime Minister Mikhail Mishustin insists that the sanctions had not disrupted the stability of Russia's financial system or affect macroeconomic stability.

"The applied systemic measures made it possible to stabilize the situation in the economy, support enterprises and entire industries, and save jobs," he said during a government meeting on Nov 29.

In the first nine months of this year, Russia's income turned out to be higher than expected while its debt levels decreased by a quarter, he said.

Russian Economy Minister Maxim Reshetnikov said on Dec 13 that data on investments in fixed assets over the past nine months could signify a positive trend in 2022.

Positive trend

According to data from the Federal State Statistics Service, known as Rosstat, the growth of investment in fixed assets in the first nine months this year amounted to 5.9 percent.

"Based on the data for nine months of this year, it is already clear that there will be a positive trend in investment at the end of the whole year," Reshetnikov said.

However, Western sanctions have, in some ways, dimmed hope that Russia could become a modern, prosperous nation in the near term, Vladislav Inozemtsev, director of the Center for Post-Industrial Studies, told The New York Times.

Beneath the veneer of normalcy, key drivers of economic growth like technology transfer and investment are eroding. "It's like a cake that was dropped on the table and it looks more or less fine, but inside it's all blown up," he said.

The most visible and dramatic impact has been on manufacturing, a sector that employs 10 million Russians and the centerpiece of Moscow's ambitious program to diversify the economy and reduce its reliance on oil and gas exports.

Still, Moscow had withstood sanctions better than many in the West had expected. Since February, the International Monetary Fund has revised its economic outlook for Russia upward twice and is forecasting a 3.5 percent decline in gross domestic product this year, similar to the Russian government's projections.

But the loss of investment, technology and skills caused by the sanctions is likely to echo across generations, depriving many Russians of a chance for a better economic future, experts said.

When Volkswagen launched full production cycles in Kaluga in 2009, Valery Volodin, a welder at a sprawling Volkswagen plant in western Russia, did not only get a job, but also unexpected support.

"I got paid to get trained for the job," he said. When robots replaced him, he was retrained. The job provided him 50,000 rubles ($718) a month, a payment required by Russian labor law that is the equivalent to two-thirds of his salary.

Volkswagen used to hire about 4,200 workers at the Kaluga plant, which it owns directly. Volvo and Stellantis, which produced and sold the Peugeot, Citroen, Opel, Jeep and Fiat brands in Russia, also have plants in the region. Pharmaceutical companies also flocked to Kaluga, which has a population of 1 million.

An ecosystem of suppliers and related industries sprang up to serve them, employing at least 25,000 people, said Dmitri Trudovoy, chairman of the independent Workers' Association trade union.

By 2020, Volkswagen's output alone represented about 13 percent of the Kaluga region's entire industrial production.

Plant shutdown

But now, Volodin just sits around at home every day, after the car factory closed down in March, joining more than 1,000 multinational companies that exited the Russian market.

"We go to work, but the plant is still shut down," Volodin said. He does not mind a temporary break from the physically demanding work, but he is not sure how to plan for the future.

"We live from day to day, for now," he said.

Trudovoy said the workers have no idea who might take over the Western factories and whether they would keep their jobs.

"They are nervous and scared for their future," he said.

Kaluga's industrial output fell 30 percent between February and July compared with the same period the year before, becoming among the regions hit hardest, according to Rosstat.

Natalia Zubarevich, a geography professor who tracks social economic data at Moscow State University, said: "What we're seeing is falling income, broad depression, less consumption. All this will negatively impact the economy of the country."

Kirill Nikulin, who owns popular bar Savor in Kaluga, feels that hit.

He had already adapted by finding substitutions for half of the beers at his pub, which he had imported. Buoyed by the seeming return to normalcy over the summer, he opened a store that sells 13 craft beers on tap and 250 more in bottles.

"We believe in the New Year," he said, hoping sales would be up ahead of the holiday.