Russia’s economy could shrink by 7% to 10% this year because of government sanctions and the stampede of American and European companies and banks. Yes, forecasting economic growth is often a bad guess. In the case of Russia at war with Ukraine and under Western economic attack, speculation is even more reckless.
But suppose that the first less pessimistic forecasts of banks and the like are confirmed: a drop of about 7% of the GDP this year and, then, regular growth between 1% and 1.5%. It looks like Brazil from the decade 2014 to 2019.
The Brazilian economy shrank by more than 7% in the 2015-2016 biennium and grew by around 1.5% from 2017 to 2019. In 2021, it recovered the losses of the epidemic year 2020 and something else — we will know details this Friday (4), when the GDP comes out.
According to current forecasts, Russia would be a long way from a Venezuelan collapse and even from the fall of Iran, strangled by Donald Trump’s sanctions, but which survives. We survive, in our slow death. Would there be political turmoil in Russia, where there has never been any democracy, apart from half a dozen years of attempts?
What power scheme supports Vladimir Putin? What groups, military or oligarchy, would give the autocrat a break? Even if Putin were thrown out, what would the foreign policy be? Would there be a general retreat, a Russian subordination to the American-European scheme to the point where sanctions were soon lifted? It doesn’t seem likely.
It is not known how long the war will last, how much it will cost or even if it could lead to even greater international disaster. It is not known whether the “West” will still impose sanctions that could throw the entire world into recession (which would be the case if there were an official and general boycott of Russian oil, gas, grains and minerals and metals).
It is possible, however, to reasonably point out the risks of collapse, in addition to more inflation and high interest rates, the most obvious.
Russia and its companies could default on foreign debt, which would dry up remaining sources of funding. This is what Sergei Aleksashenko, deputy finance minister and deputy of the Central Bank of Russia in the 1990s, writes in an article for Al Jazeera.
According to Alekasashenko, Russian banks and companies would have to pay more than US$100 billion in interest and part of the principal of their foreign debt over the next 12 months. Much? In 2021, the balance of payments balance, the final account of cash inflows by trade and finance, was positive by a staggering $120 billion.
Even if it repeated that balance, paying off the debt would leave Russia on the bone. However, the country will still lose foreign investment, will receive almost none and should export less (as companies from the rest of the world will buy less from Russia, even if they are not prevented by sanctions). So Russia would have to import less and find a way to draw on international reserves that they still have access to. How?
The problem doesn’t stop there, of course. The so-called real economy will suffer, as it will not be able to import parts, components and machines. A lot will fail, productivity will drop.
The obvious question is whether Russia can count on China as an even greater customer of its exports, as a facilitator of international payments and exporter, in what it can, of industrial inputs in particular (in part it will not be able to, as it does not have the ).
Aleksachenko says that the Russians expected great help from China when they were subjected to sanctions motivated by the annexation of Crimea (2014). They had only a little help. There is no reason to believe that the Chinese position will change now, says Aleksachenko.
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.
