The recession in Russia is going to be ugly in 2022. But perhaps the economy will shrink by only half of what Western economists and even the Russian government predicted in April. Unemployment is at an all-time low. Inflation and the basic interest rate fall.
In the short term, at the very least, the Russian system can take the economic hit, prolong the war, run out of gas in Western Europe and cause even more political havoc in the West, see the contribution it made to the early degradation of Joe Biden’s prestige in the US , with oil inflation.
In the medium term, who knows. A Russian bank, Sberbank, even talks about a lost decade. As far as the more immediate prospects were concerned, the Russians turned around.
In the survey carried out by the Central Bank of Russia (BCR) with economists on GDP, the median forecast in July was for a fall of 6% in 2022 and 1.3% in 2023. In the biennium, the composite decrease would then be 7 ,two%. Much? In the biennium of the Great Recession in Brazil, 2015-2016, the decline was 6.7%.
In BCR’s own estimation, GDP falls between 6% and 4% this year and between 1% and 4% in 2023. Advertising? In the IMF’s guess, the recession of this 2022 would be 6%. For some US banks, less than 4%.
The collection of the Russian government is within the expected, even with the recession. The obvious reason is increased oil and gas revenue. In 2021, it was 18% of total revenue. In the first half, up 38%, even with Russian oil (Urals) being sold at liquidation price. Oil and gas tax revenue increased by 33% from 2021 to 2022.
The benchmark interest rate, their Selic, fell on Friday to 8% a year, below its pre-war level of 9.5%. Shortly after the start of Western sanctions, at the end of February, it was down to 20%.
The comfortable situation in the external accounts (exports of expensive energy) and the capital controls appreciated the ruble. Inflation starts to fall. It is at 15.9% per year (it was 9.2% per year in February).
The unemployment rate in May dropped to a low of 3.9%, despite a reduction in real wages and hours worked. Retail trade sales are falling at a pace of 10% (vs. same month a year ago).
But Russia turns around. As Elvira Nabiullina, the president of the BCR, said last Friday, there will be more efforts to “reduce the dollarization of the economy and the financial sector”, with “increased importance of the currencies of friendly countries” and the ruble in foreign transactions.
Airlines, exporters, vehicle assemblers and civil construction have been hit hard by the sanctions. But Nabiullina says that corporate finance is holding up and that household savings are high, even due to prudent repression of consumption and lack of anything to buy. The BCR president also says that the sanctions insulated Russia from certain fluctuations in the world economy and increased the domestic supply of some (now unexportable) goods. Consumer confidence and credit demand deteriorate.
Still, said Nabiullina, the recession will be less deep, but it will last longer. Some growth, only in 2024. But Russians need to match the rest of the world, at least with their friends.
Poverty will increase. The market economy is a bit of a fiction in an autocratic regime, which can get its hands on anything, allied with kleptocrats.
Europe will graze, but it will stop buying Russian energy. Without radical government change, Russia will not have access to cutting-edge technology and quality inputs. It will have to invent an import substitution and rely on Chinese help. But Vladimir Putin and his government seem to have the means to wreak havoc on the world’s economy and politics for a long time to come.
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
