The economic impact of sanctions on the Russian economy

Abstract

This paper assesses the impact of the EU and NATO sanctions on the Russian economy. An examination of the data revealed that the sanctions have directly impacted on various sectors of the Russian economy. Notable among them were the financial sector which includes the banks, major publicly owned companies in the fuel/energy sector as well as the military and technological equipment. These sanctions severely constrained these sectors as they struggled with lack of funding and investment. The economy also witnessed huge capital flight or outflow at an estimated value of $7.8bn, which was further compounded by gross negative capital inflow in the form of FDI’s (foreign direct investments). In addition to that, the embargo on food imports as well as trade sanctions led to a rise in inflation which further resulted to a rise in commodity prices and by extension loss of confidence in the falling Ruble. The sanctions also led to erratic trade flows and loss of market share. On the contrary, despite the sanctions the Russian economy moved to 45th place in the global competitiveness report. Besides the Russian government continuously offer support to its financial institutions in the form of low interest loans which led to their buoyancy.