WESTERN nations have loaded Russia with sanctions aiming to punish the country for its decision to invade Ukraine, but a report published earlier this week in The Economist magazine suggests that the oil-rich nation is doing much better than many might think.

As part of the sanctions described as an economic war aimed at sending Russia’s economy into freefall, the US banned the sale of a wide range of goods to Russia; big companies pulled out by the dozen; and a number of countries together froze 60 per cent of the central bank’s international reserves. In the week after the invasion the rouble — the Russian currency — fell by a third against the dollar, and the share prices of many Russian companies collapsed.

The Economist report went on to document that the chaos in Russian markets seems to have subsided. The rouble, which sank so low in early March it was dubbed “rubble”, has jumped, and is now approaching its pre-war level. It also pointed out that Russian stocks, which plunged by a third, has since recovered most of its losses. Also, even with sanctions, the government and most firms are making payments on foreign-currency bonds. A run on banks that saw nearly three trillion roubles (US$31b) withdrawn came to an end, with Russians returning much of the cash to their accounts.

Helping stabilise markets are the actions taken by the authorities. The central bank raised interest rates from 9.5 per cent to 20 per cent, encouraging people to hold interest-bearing Russian assets. Unconventional methods such as the government decree that exporters must convert 80 per cent of their foreign exchange proceeds into roubles has also helped. Over on the stock exchange, short-selling is banned, and non-residents cannot offload stocks until today.

That’s not where the Russian economy seems to be faring well alone. The Economist article outlines that the country’s real economy is healthier than it seems at first glance. A weekly measure of consumer prices shows that they have risen by more than five per cent since the beginning of March alone. Many foreign firms have pulled out, cutting the supply of goods, while a weaker currency and sanctions have made imports more expensive. But not everything is surging in price. Petrol costs about the same. And though it is early days, there is little evidence yet of a big hit to economic activity.

It pointed to data produced by the Organisation for Economic Co-operation and Development (OECD), a rich country think tank, which shows Russia’s gross domestic product (GDP) in the week to March 26 was about five per cent higher than the year before. Other “real-time” data gathered by The Economist, such as electricity consumption and railway loadings of goods, are holding up. A spending tracker produced by Sberbank, Russia’s largest lender, is slightly up year on year. Part of this reflects people stockpiling goods before prices rise: spending on home appliances is especially strong. But spending on services has fallen only a bit, and remains far healthier than it was during much of the pandemic.

In the end though, the article concluded that Russia still seems sure to enter a recession this year with the expectation that its GDP could decline between 10 per cent and 15 per cent. But even that depends on three factors, according to the article. The first is whether ordinary Russians start worrying about the economy as the war drags on, and reduce spending—as happened in 2014, when Russia invaded Crimea. The second is whether production eventually grinds to a halt as sanctions block firms’ access to imports from the West. Russia’s aviation sector looks particularly vulnerable, as does the car industry. Yet many big businesses that started during Soviet times are used to operating without imports. If any economy could come close to coping with being cut off from the world, the article argues, it would be Russia’s.

The third and most important factor relates to Russia’s fossil fuel exports. Despite sanctions, Russia is still selling about US$10b worth of oil a month to foreign buyers, equivalent to a quarter of its pre-war exports; revenues from the sale of natural gas and other petroleum products are still flowing in, too. This provides a valuable source of foreign currency with which it can buy some consumer goods and parts from neutral or friendly countries. The overall conclusion from The Economist is that unless that changes, the Russian economy may stumble on for some time yet.