En juin, les importations russes d'équipements automobiles étaient 65 % inférieurs à leur niveau d'avant la guerre en Ukraine.

The unexpected resilience of the Russian economy will not last

Posted on October 19, 2022 at 7:00 amUpdated on October 19, 2022 at 9:17 am

Touched but not sunk. Despite the sanctions, the Russian economy has not collapsed. She resists in some way. And even better than expected. While the International Monetary Fund was counting on a very severe recession last spring, this is no longer the case. In April, the IMF forecast an 8.5% drop in Russian GDP this year. Now, the expected drop is “only” 3.4%. It is nothing, of course, but we are far from the collapse predicted at the beginning of the war.

A growing current account surplus

“This less pronounced than expected contraction last spring is mainly due to the increase in export earnings. But that doesn’t change the overall picture, which remains one of a long-lasting recession in Russia,” says Benjamin Carton, an IMF economist. Clearly, with prices soaring, Russian hydrocarbon exports are doing well.

In the first nine months of the year, Russia’s current account surplus reached $200 billion, while between 2007 and 2021 it averaged $50 billion in the same period, according to calculations by Robin Brooks, chief economist at the International Institute of Statistics. Finance (IFI). Russia’s imports have certainly fallen, hampered by Western sanctions, but exports are doing quite well.

“Three months to leave the market economy”

By 2022, the IMF forecasts that Russia’s current account surplus will thus reach more than 12% of GDP thanks to sales of gas and oil abroad. More than ever, as US Senator John McCain joked, “Russia is a gas station pretending to be a country.”

This allows Vladimir Putin’s regime to finance the war in Ukraine and redistribute windfall profits from oil among the population, in the form of social benefits. The other reason for the relative resilience of the Russian economy is that the bank sanctions did not create a financial crisis, or bank failures, as the central bank managed to avoid a panic.

The price to pay in the short term so that the Russian economy does not collapse are restrictions of all kinds, capital controls and others. “The Russians took years to build a market economy, it took them three months to abandon it completely,” summarizes Heli Simola, an economist at the Bank of Finland.

deficit budget

And it may be now that the problems start again for Russia. Already, with the drop in the price of a barrel of oil, investors anticipate a global recession, exports have started to lose value since mid-summer and tax revenues are affected. The Russian state budget is now in deficit and the country no longer has access to Western markets for financing.

We therefore understand Russia’s interest in consolidating its alliance with Saudi Arabia through OPEC+ to achieve a reduction in quotas and try to raise prices. Especially since the European embargo on Russian oil will come into force at the end of 2022 and “we can expect to see more visible effects of the sanctions on the balance of payments and budget accounts,” estimates Simone Tagliapietra, an economist at the Bruegel Institute. .

a speed race

Which makes Heli Simola say that “Russia’s economic difficulties are only staggered. Next year, Russian GDP will fall by around 4%,” he said. Because European sanctions will have an impact on the Russian economy. They already have one. Russian industry is highly dependent on Western imports. But these are in free fall. Imports of electrical equipment fell 61% in June compared to the pre-war period, those of auto parts fell by almost 65%. Russia has tried to diversify its supplies. Russian imports from Turkey have skyrocketed, but this country alone cannot replace all the sales from the 27 countries of the European Union.

“The exit of a large number of Western companies, Russia’s difficulties in finding alternative supplier countries, the lack of financing to invest, the resurgence of corruption in a managed economy or even the inability to acquire the best foreign technologies, all of this it will finally end up having a significant impact on the Russian economy”, warns Heli Simola. The problem is that, economically, the war in Ukraine is a race between the European Union and Russia. The first economy to get out of the way will lose an important battle.

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