London (CNN) President Vladimir Putin has admitted that Western sanctions designed to starve the Kremlin of funds for its invasion of Ukraine could damage Russia’s economy.
“The illegitimate restrictions imposed on the Russian economy may have a negative impact on it in the medium term,” Putin said in televised remarks on Wednesday as reported by the state news agency TASS.
It was a rare admission by the Russian leader, who has repeatedly insisted that Russia’s economy remains strong and that sanctions have hurt Western countries by raising inflation and energy prices. .
Putin said Russia’s economy has grown since July, thanks in part to stronger ties with “Eastern and Southern countries,” likely referring to China and some African countries. He also emphasized the importance of domestic demand in the economy, saying it has become the main driver of growth.
The Russian economy has shown surprising resilience in the face of unprecedented sanctions imposed by the West, including the EU’s ban on most oil product imports. Preliminary estimates from the Russian government showed that economic output fell by 2.1% last year – a decline that was more limited than many economists had initially predicted.
However, as China throws the Kremlin an economic line by buying Russian energy and providing an alternative to the US dollar, cracks are beginning to appear.
Russian government revenue fell 35% in January compared to a year earlier, while expenditures jumped 59%, leading to a budget deficit of nearly 1,761 billion rubles ($23.3 billion).
The World Bank and the Organization for Economic Cooperation and Development predict contractions of 3.3% and 5.6%, respectively, in 2023. The International Monetary Fund expects that growth in Russia will remain flat this year, but for the economy which will decrease by at least 7% in the medium term.
In response to Russia’s aggression in Ukraine, Western countries have announced more than 11,300 sanctions since the February 2022 invasion, and have frozen about $300 billion in Russian foreign reserves.
An outspoken Russian oligarch, Oleg Deripaska, said earlier this month that Russia could find itself bankrupt next year.
Indeed, Austrian bank Raiffeisen Bank International said on Thursday that it was looking to sell or divest its Russian business. In a statement, the bank called market conditions in the country “highly complex” and said it was “committed to a further reduction in business activity” there.
Raiffeisenbank Russia made over $2 billion in revenue last year. But due to strict local rules, Raiffeisen cannot take any profit from Russian business abroad.
– Rob North and Livvy Doherty contributed reporting.
