With the ruble rapidly weakening and fears about the future, the Russians rush to go shopping

FILE PHOTO: Image showing Russian ruble coins featured in this image
FILE PHOTO: Russian ruble coins are seen in this illustration taken on February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

March 5, 2022

(Reuters) – A long line of shoppers snaked outside an IKEA store near Moscow in bright sunshine this week. Similar scenes were repeated across Russia as families spent their rapidly depreciating rubles at the Swedish retailer leaving the crisis-hit country.

Russians are preparing for an uncertain future of rising inflation, economic hardship and even greater pressure on imported goods.

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 excluded several banks from the global payments system SWIFT, leaving the ruble in free fall.

(Chart: Russia’s foreign exchange reserves have increased by more than 75% since 2015,

Cities across Russia appeared calm on the outside and there was little evidence that the crisis was wreaking havoc on the financial sector and markets. Except for the lines of people looking to stock up on products – mostly high-end items and hardware – before shelves run out or prices continue to rise.

“The purchases that I had planned in April, I urgently bought today. A friend from Voronezh also told me to shop for her,” buyer Viktoriya Voloshina told Reuters in Rostov, a city 217 kilometers from Moscow.

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

Dmitry, another Moscow resident, bemoaned rapid price increases.

“The watch I was going to buy costs about 100,000 rubles now, compared to 40,000 about a week ago,” he said, without giving his last name.

But the surge in spending visible this week could be phased out.

While there are no tangible signs of panic, the destruction of ruble savings and the doubling of interest rates to 20% will put pressure on mortgage holders and consumers.

Financial conditions – which reflect the availability of credit in the economy – have tightened brutally this year, which Oxford Economics says would shrink domestic demand by 11% by year-end and raise unemployment by 1.9 percentage points in 2023.

Zach Witlin, an analyst at Eurasia Group, notes that consumers are already being hit with sanctions from price hikes and digital payments disruptions.

While consumers aren’t being attacked directly, “fear and caution are exaggerating the impact,” with the exit of foreign brands like IKEA creating a “snowball effect,” he added.

(Graphic: Russian financial conditions have tightened,

Imports into insulation

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

The government’s severe import cuts in recent years mean imports in 2021 remained 7% below 2013 levels, before the first sanctions were imposed after Russia annexed Crimea in 2014.

(Graphic: Russian imports and exports,

It has also boosted trade with China, which has been the only country boosting exports to Russia since 2014.

(Graphic: China’s trade with Russia,

But further falls seem inevitable as the ruble plummets, insurers refuse cover to companies exporting to Russia and shippers are backing out of Russian ports, whether they are exporting or importing.

While few Russian companies are affected by sanctions, “all will feel the deterrent effect,” said Matt Townsend, sanctions partner at law firm Allen & Overy. “Therefore, sanctions are a very effective measure to isolate a country.”

The immediate economic shock will result in a 35% contraction in GDP in the second quarter and a 7% contraction in 2022, JPMorgan forecast. But “increasing political and economic isolation will limit Russia’s growth potential in the coming years,” she added.

This could come about if restrictions “limit the acquisition of technology needed to support Russia’s most valuable industries,” RBC Global Asset Management warned.

The Biden administration is preparing rules to restrict Moscow’s ability to import smartphones, airplane parts and auto components.

But multinationals, from tech companies Apple and Microsoft to consumer goods makers Nike and Diageo, have severed ties with Russia, meaning buyers will have limited access to the consumer goods they’ve grown accustomed to over three decades .

Chinese companies that have remained in place so far could gain market share, but they too could be victims of secondary sanctions as many of their products, such as smartphones, use US technology.

Some Russians don’t stay to find out. Lidia, a Rostov-based freelancer, said the money transfer restrictions are making it harder to receive payments from abroad.

“The sanctions hit me very hard. Prices have already gone up by about 20%… It is a fact that you cannot buy some medicines already. Things are only going to get worse,” she said.

“Today my family and I are leaving Russia.”

(Writing by Ira Iosebashvili and Sujata Rao) With the ruble rapidly weakening and fears about the future, the Russians rush to go shopping

Bobby Allyn

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