Russia's slump pushes 3 million into poverty

Russian banker: Sanctions hurt us
Russian banker: Sanctions hurt us

After years of getting richer, millions of Russians are now sliding back into poverty.

The number of Russians living on less than 9,662 rubles ($169) a month -- the official poverty line -- surged to nearly 23 million at the end of March, according to official data.

That's three million more than last year, when the combination of Western sanctions and tumbling oil prices triggered a sharp recession.

Deputy Prime Minister Olga Golodets told Russian TV last week that the situation was becoming "critical."

A collapse in the value of the ruble sent inflation soaring -- prices rose by an annual rate of 16% in the first quarter of 2015.

That in turn means Russian pay checks buy a lot less than they did a year ago. The annual fall in real wages was 14% in May and 7% in June.

The shock comes after years of growth fueled by Russia's booming oil industry.

During 15 years of Vladimir Putin's leadership, Russia saw its official poverty rate drop steadily to 11% in 2014.

That trend has been reversed -- 16% of Russians are now officially poor. And with no end in sight to the crisis in Ukraine, the misery is unlikely to ease soon.

Western sanctions over Russia's annexation of Crimea, and its support for separatist rebels in eastern Ukraine, were extended until 2016 last month.

Related: 1.8 billion disappears in Russia's space program

The fall in living standards has forced Russians to slash spending -- retail sales dropped 9.4% in June, after sliding every month this year.

Overall, the Russian economy shrank by 2.2% in the first quarter. The IMF expects it to contract by 3.8% this year, and by more than 1% in 2016.

Russian banks and companies have been cut off from European funding, and Russian arms exports are banned in the west. Travel bans and asset freezes have been imposed against dozens of Russian officials as well as some companies.

Trade with the European Union -- Russia's biggest partner -- fell by more than a third in the first two months of 2015. Prime Minister Dmitry Medvedev estimates sanctions will cost Russia $106 billion through 2015.

Russia has retaliated by banning Western food imports, but the move backfired, driving prices up nearly 21% in June.

Personal Finance


CNNMoney Sponsors