While Russian President Vladimir Putin is claiming that sanctions have failed to undermine the country’s economy, international finance agencies and even Putin’s own officials say otherwise, while Beijing–the Kremlin’s main economic ally–is holding back.
“…we can already confidently say that such a policy towards Russia has failed, the strategy of economic blitzkrieg has failed,” Putin said at a meeting with government ministers, stressing that retail demand had normalized and unemployment had remained low.
Yet, earlier this month he acknowledged that consumer prices had risen significantly, with annual inflation hitting 17.5%. And now, the country's Central Bank has come out with an even higher inflation estimate.
Last week, a Russian Central Bank survey showed inflation soaring to 22% this year, with the bank’s Governor Elvira Nabiullina saying that the fallout from sanctions is beginning to spill over from financial markets to the real economy. Addressing parliament, Nabiullina said that "difficulties are appearing across all sectors, in both big and small companies”.
The newly appointed chief economist of the International Monetary Fund (IMF), Pierre-Olivier Gourinchas, said in a blog post that Russia’s economy would effectively be “thrown into autarchy” if sanctions were expanded to include energy, leaving it with only a few trading partners.
Even China and India, which have refrained from joining Western sanctions on Russia, might reconsider their trade relations under the pressure of continuing to do unfettered business with those countries that have imposed sanctions.
Yet, while China appears to be a full-on Russian ally, more quietly it’s doing what benefits it most, and in some cases that includes distancing itself from Russia’s sanction-suffering economy
UnionPay, the Chinese state-led financial services network that would have been the ideal replacement for Western Visa and Mastercard, which have both suspended operations in Russia, has reportedly decided not to cooperate with Russian banks.
According to Russian media, UnionPay has refused to cooperate with Russia’s biggest lender, Sberbank, out of concern over secondary sanctions.
UnionPay also suspended negotiations with other banks, including Russia’s largest private lender, Alfa Bank, and VTB.
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Even though Russia and China proclaimed last month that their friendship had "no limits," the possibility that Chinese companies might face U.S. sanctions over ties with Russia is starting to cap those “limits”.
The loyalty test is quite simple here, as trade between China and Russia makes up just 2% of China's total trade volume, while the U.S. and the European Union have much larger shares.
Nor is UnionPay the first instance indicating China’s distancing from Russia. Last month, Russian officials complained that China had refused to send aircraft parts to Russia.
Russian state news agency Tass quoted Valery Kudinov, head of aircraft airworthiness at Russia's air transport agency, as saying that Russia might look into Indian or Turkish suppliers. He was fired five days later.
Last week, the IMF slashed its forecast for global economic growth by nearly a full percentage point, citing Russia’s war in Ukraine.
The IMF is now projecting a 3.6% GDP rate for the global economy this year and for 2023, representing a 0.8 and 0.2 percentage point drop, respectively, from its forecasts published in January. It also cut its global growth expectations for 2022 of 3.2%, down from 4.1%.
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The agency said Russia’s gross domestic product was expected to contract 8.5% this year, with a further drop of 2.3% expected next year.
Gourinchas recently told media that Western sanctions targeting Russian energy exports could cause Russia’s economic output to drop by as much as 17% by 2023. The forecast for the Ukrainian economy is even bleaker, where the IMF said that it will contract by 35% in 2022.
Earlier this month, the World Bank said that the continuation of the war would cause even massive falls in GDP, with the estimates a downside 20% contraction in Russia’s GDP and a 75% contraction in Ukraine’s GDP
“The effects of the war will propagate far and wide, adding to price pressures and exacerbating significant policy challenges,” Gourinchas said in his blog post.
By Fred Dunkley via Safehaven.com
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As for the Russian economy, it has neither collapsed nor has it been "crippled" and it is showing even more staying power than in 2014-2015 when Obama declared but failed to turn it to "tatters". Inflation numbers for March and April, even if they are to be projected for the whole year, do not tell the whole story. The West is only a part of a much larger world and it can dent but cannot "cripple" the Russian economy. The ruble, which was proclaimed to be finished, is back below its January rate as EU importers have submitted to Moscow's demands for ruble payments. Other key commodities are in line - wheat, fertilizer, metals, oil, coal. Meanwhile, inflation in the Western states has reached highest levels in 40 years, hitting debt ridden households and governments. Which society and economy can better stand the pain?
1- President Putin is telling the truth when he says that Western sanctions against Russia have failed. In fact the economies of those imposing the sanctions are the ones suffering from the adverse impact of the sky-high oil and gas prices while Russia’s economy is raking in cash as a result of these very high prices. Russia’s budget surplus is projected to rise from $120 bn in 2021 to $130-$140 bn in 2022.
2- Autarchy isn’t a problem for Russia’s economy. The reason is that it is a self-sufficient economy with Russia not needing to import virtually anything. However, it is a major exporter of everything the global economy needs to function properly from energy to wheat and agricultural products and from fertilizers to precious metals and processed uranium. Moreover, by not importing, Russia is having a huge surplus in its trade balance.
3- China’s and Russia’s economies complement each other and the two countries use their national currencies for commercial transactions. Trade between the two countries has risen from $11 bn 10 years ago to $150 bn in 2021.
4- China has been defying US sanctions against Iran and Venezuela and importing crude oil from them openly. Is it possible it will distance itself from its closest strategic partner because of Western sanctions?
Such Western disinformation is biased and politically-motivated and therefore it could be totally ignored.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Not bragging,just remember running bed truck out in the mess,and on the radio they announced that waste of money,I took it good being I was throwing chains on and of a few times a day and getting in and out of far worse than a field or farmstead road,truth was I was getting to the lazy ass cattle on the poor farmers roads too
The squeaky weel always gets to grease the fat hog.
My point is simply this they gets paid if those foreign cows end up froze!Bison can and will survive the same blizzard The Strategic Interest of this country ain't even remotely conserved with a few thousand froze cattle who aren't foraging for themselves;
But if the American oil production lags for a week,we release stockpiles to allies and just to lower prices a few dozen cents,this crew has to get to sack em up!
The overall impact of these flux in policies and prices will drive inflation to 200 ,we will still need to refill stockpiles,a looming catastrophe,not quite as bad as Hunters dick pics or crack pipe or his lying boring corrupt daddy