Russia’s economy is mercilessly in recession

“Official forecasts are expected to shrink by more than 10%. (GDP)“” In 2022, Alexei Kudrin, a former finance minister of Vladimir Putin, warned this Tuesday, quoted by Russian news agency Ria Novesti.

This decline in activity, which will continue for the next few months, is the result of sanctions imposed on Russia by Western nations in response to the Ukrainian invasion decided by Moscow on February 24. The recession could reach 8.4% in 2022, according to estimates by Focus Economics, a specialist in economic forecasting. This is a dramatic revision of 9.1 percentage points compared to the February estimate. And the country should still be in recession at -0.8% in 2023. “While the withdrawal of foreign companies has plunged investment, rising inflation, worsening labor markets, high interest rates and a weaker ruble are expected to reduce consumer spending.”Focuses on economics.

Energy sector weight

Russia has the peculiarity of being heavily dependent on its energy sector. Before the war in Ukraine, it was worth 20% to 25% of GDP, 65% of exports and 30% of the national budget income. This is why Ukrainian President Volodymyr Zelensky argues that Europeans must stop buying all Russian hydrocarbons in order to bend Moscow. A decision that is subject to intense debate that divides European countries where some economies such as Germany, Italy and Hungary are highly dependent on these imports. To date, only the purchase of coal has been banned. According to the CREA site, which has been tracking the purchase of these hydrocarbons daily since February 24, Russia has been paid € 30.4 billion (including € 19 billion for gas alone).

Last Friday, major new sanctions were added to the list. The US removal of the Most Favored Nation clause for Russia-Belarus has also been sanctioned-this has allowed it to benefit from the same commercial benefits over any other state. Import of similar products. This restriction allows any country to impose tariffs on Russian imports. A new stage to transform the country into a Pariah state like North Korea.

As a sign of this gradual suffocation, Moscow was unable to respect the payment of dollar-denominated Eurobond coupons on April 4, and offered payments in the ruble. As a result, the issuer credit rating denominated in foreign currencies by the rating agency Standard & Poor’s has been reduced to the “selective default” state. The credit rating of the local currency issuer remains “under review with negative impact”. Deterioration that mercilessly approaches the defaults that could be avoided so far. “Russia sought to repay external creditors in good faith by sending the corresponding amount in foreign currency to pay its debt. Nevertheless, the intentional policies of Western countries are always artificial. Is to create a default. “Criticized Russia’s Finance Minister Anton Siluanov and shook the threat of legal action. Some companies, such as RZD, the Russian railway company, and the diamond mining group Alrosa, were already unable to accept dollar-denominated refunds.

Inflation of 16.7%

Domestically, Russian households must cope with the surge in inflation, which rose from 9.15% in February to 16.7% in March. Rising prices are particularly supported by the weakness of the ruble, which raises import costs, and the declining supply of consumer goods, which pushes up food and energy prices. Focus economics experts forecast a percentage of 19.9% ​​in 2022 and 12% in 2023.

The Central Bank of Russia doubled this interest rate to 20% on February 28 to stabilize the macroeconomic environment and then lowered it to 17% on April 8 to boost inflation in order to support its currency. I stopped it. It should be about 18.69% at the end of the year and 11% by 2023. In fact, the overall rise in prices emphasizes manufacturing activities. The PMI index fell to 44.1 in March after already shrinking to 48.6 points in February (below the threshold of 50 means diminishing activity). This is the worst in 22 months. The decline in the services sector was even more spectacular, with February still positive, at 52.1 points, but plummeting to 38.1 in March.

Not so bad, the Russian currency is stable at prewar levels. The dollar was trading at about 83 rubles and the euro was trading at about 91 rubles on Tuesday. “With the intervention of the Central Bank of Russia, the ruble has been able to regain the ground lost since March. (At that time, the dollar was trading for over 130 rubles) After downgrading sovereign debt to the “junk” categoryReminds me of Focus Economics. The Central Bank of Russia will abolish the 12% commission applicable to foreign currency purchases from Monday and will lift the ban on the sale of foreign currency to individuals from April 18.

The rubles benefit from support in the form of obligations for exporters, especially the hydrocarbon sector, to convert at least 80% of the foreign currency they receive from sales into rubles.

Impact on global growth

However, this adaptation to the development of sanctions may find limits. On Friday in Kieu, European Commission President Ursula von der Leyen visited the President of Ukraine and predicted that “Russia will fall into economic, financial and technological decline.” However, this can also find limitations, especially in its impact on the global economy. “Current negotiations between Ukraine and Russia could lead to a ceasefire agreement, but they too cannot succeed and new escalations cannot be ruled out. In this case, stricter sanctions and counter-sanctions Means that global inflation could reach 7% in 2022 and economic growth could be limited to + 2.5% before the global economy falls into a recession. 2023 (-0.3%). “Warns Ana Boata, Director of Economic Research at Allianz Trade.