Economist: Russia’s economy is still coping well with sanctions

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The British magazine The Economist, in its article entitled “Wounded Bear. How the Russian Economy Is Living Under Unprecedented Sanctions”, claims that so far it is coping with sanctions better than you might think.

In response to Russia’s invasion of Ukraine, the West declared economic war on Russia, the Economist writes. The United States has banned the sale of a wide range of goods to Russia, the largest companies have left the country one by one, and 60% of the Central Bank’s reserves stored abroad have been frozen.

The idea was to punish Putin for aggression by destroying the Russian economy. A week later, the ruble fell against the dollar by a third, the share prices of many Russian companies collapsed.

The Economist wonders: is this Western strategy really working as planned?

The chaos in the Russian markets seems to have subsided, the magazine states. After the fall in early March, the ruble strengthened, and its rate is approaching pre-war times. The main indicator of the Russian stock market fell by a third, but it partially recovered losses.

The government and most companies pay on foreign currency bonds. The mass withdrawal of cash – almost 3 trillion rubles – was over, and the population returned most of the money to their accounts.

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Caption to the photo,

Uniqlo is one of many that have left the Russian market

A series of measures taken has helped stabilize markets. Some measures were traditional, such as raising the Central Bank’s rate from 9.5% to 20%, which encouraged the population to keep funds in ruble accounts.

Other measures are not so common, for example, the order to hand over 80% of foreign exchange earnings by exporters.

Trading on the Moscow Stock Exchange has become, in the euphemism of the Central Bank, “contractual.” Short sales are prohibited, and non-residents cannot sell shares until April 1. (The Moscow Stock Exchange reported that on March 31, the ban on short selling is lifted for participants in stock clearing, but remains for brokers’ clients. – approx. BBC)

The real economy, the Economist continues, reflects the financial world in some ways: it is healthier than it seems at first glance.

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Caption to the photo,

French sports retailer Decathlon announced the cessation of operations in Russia only on March 29 – after calls on European social networks to boycott its products

Consumer prices have risen by more than 5 percent since the beginning of March alone. Many foreign firms withdrew from the market, cutting off supplies of goods, and the weakened ruble and sanctions led to higher imports.

But not everything jumped in price. Vodka, mostly a Russian product, costs only a little more than before the war. Gasoline – almost the same as before. And although it is too early to say anything, there are still few signs that economic activity has been hit hard.

According to the OECD (Organization for Economic Co-operation and Development), which conducted a study based on online data, Russia’s GDP in the fourth week of March was about 5% higher than a year ago.

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Caption to the photo,

The Russian car industry found itself in a difficult situation after leaving the market of the largest companies

Other data collected by Economist experts suggest that electricity consumption and rail transport are maintained at normal levels.

Sberbank’s cost analysis tools show that the population spends a little more than a year ago.

This is partly due to the fact that people are stockpiling in anticipation of rising prices. Home appliances are especially active. But spending on services has fallen only slightly and remains much more active than during the pandemic.

Nevertheless, this year Russia seems to be entering a recession. Some predict a 10-15% drop in GDP, depending on three factors.

The first is whether ordinary Russians will start worrying about the economy while the war continues and, accordingly, whether they will start saving by cutting costs, as happened in 2014, when Russia annexed Crimea.

The second is whether production will stop due to sanctions that have blocked Russian companies’ access to Western imports. The Russian aviation sector is particularly vulnerable, as is the automotive industry. But here we must take into account that many companies that started in Soviet times, had experience working without imports. If anyone’s economy can somehow cope in isolation from the rest of the world, it is Russia’s.

The third and most important factor is the import of Russian energy. Despite the sanctions, Russia still sells $ 10 billion a month to foreign buyers. This is a quarter of pre-war exports. Revenues from the sale of natural gas and petroleum products also come.

It is an important source of foreign currency, which can be used to buy goods in neutral and friendly countries. And until that changes, the Russian economy may still stretch for some time, the Economist concludes.

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