Russia’s economy is stalling, but the road to prosperity may be long – #Russias #economy #stalling #road #prosperity #long

MOSCOW, February 23 (Reuters) – Russia its economy proved unexpectedly resilient in the face of tough Western sanctions last year, but a return to pre-conflict prosperity may be a long way off as more public spending is diverted to the military.

Even domestic forecasts made immediately after Moscow’s military intervention in Ukraine a year ago put the economy in 2022, surpassing the downturns seen after the collapse of the Soviet Union and during the 1998 financial crisis. 10predicted to shrink by more than %. But the first estimates of the Rosstat statistics agency show a 2.1% decrease last year.

“Russia its economy and governance system have proven to be much stronger than the West assumed,” he said the president Vladimir Putin Russia this week political, military and to the business elite. “Their calculation failed.”

Energy exports are high prices It helped cushion the blow from sanctions aimed at isolating Russia economically, while capital controls saw the ruble strengthen to a seven-year high. The decline in imports resulted in a record current account surplus.

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Led by Elvira Nabiullina central bankabout 300 billion dollars Despite losing access to international resources, he kept a steady hand on the farmer.

But the analysts, despite this, Moscow’s “special” in Ukraine military they see that the operation, which he calls “operation”, is a significant and long-term opportunity cost. Before the conflict, the government had forecast economic growth of 3% last year.

“The fact that the economy surprised everyone last year is certainly a positive factor,” said Grigory Zhirnov, an analyst of the My Investments Telegram channel. “However, it is better to compare the dynamics if the previous trend continued.”

Jirnov noted that the economy will not recover its 2021 size until 2025 and “close to the level of GDP that could have been achieved without last year’s crisis. 10 it will hardly be enough in a year,” he said.

Oil, which is the lifeblood of Moscow’s economy, and gas finds new markets in Asia for its exports and continues to supply consumer goods through the gray import scheme. However, it is increasingly eschewing and turning inward from the Western markets that helped fuel its growth in the post-Soviet space.

The “de-dollarization” deal means that the ruble has doubled its share of Russia’s international settlements, Putin said. And banks are looking for internal means to revive profits.

Putin advised the business elite to invest in Russia, saying that ordinary Russians feel no sympathy for their lost yachts and mansions.

‘GUNS ARE NOT BUTTER’

He also advocated sustainable domestic development and a self-sustaining economy, recalling the criticism leveled at Soviet leaders that military focused so much on costs that they neglected people’s well-being.

There is a saying: “Weapon is not oil”, Putin said. “The defense of the country is, of course, the most important priority, but when solving strategic tasks in this area, we should not repeat the mistakes of the past and destroy our own economy.”

However Russia increases military spending and the diversion of funds from hospitals and schools will ultimately hinder the development of civilian economic infrastructure.

Rising costs and falling revenues january 25 per month billion dollar budget deficit, while the current account surplus more than doubled compared to the previous year.

High oil prices normally on rainy days National It would help fill the Wealth Fund, but since hydrocarbon exports are currently subject to embargoes and price restrictions, Russia is currently selling Chinese yuan from the NWF to cover the deficit.

Although the Ministry of Finance has promised that the deficit will not get out of control, access to the fund will reduce Moscow’s future spending power and inflation risks feeding its risks.

His analysis of Russia’s economic health is consistently more pessimistic than Putin’s central bank warned that the widening of the budget deficit was causing inflation and said that it was more likely to raise interest rates from 7.5% this year than to cut them.

This year’s oil and gas meeting its revenue target looks increasingly problematic, veteran economist Oleg Vyugin wrote in a report this month, especially amid falling prices for Russia’s Urals crude.

To fulfill the budget plans, the Russian central bank will be forced to increase borrowing costs inflation The NWF will have to double its spending.

Vyugin writes: “Implementation of such a budget will lead to the gradual erosion of financial stability and the real population labour it is the way that leads to further lowering of the fee”.

Real disposable incomes fell 1% last year, prompting Russians to save more and spend less. Retail sales fell by 6.7%.

Aleksandra Prokopenko, an independent analyst and former adviser to the Central Bank, says that Russians’ greater tendency to save is a sign of economic uncertainty.

Noting the opportunity cost for the economy, Prokopenko said that Russia’s financial management is used to managing crises. Similar officers 20They took charge after the global financial crisis in 2008 and steered the country into deteriorating relations with the West.

“We can say for sure that the picture is not black and white. “Putin can be proud of the “Fortress Russia” built for him by the financial management,” he said. “But it was built at a high cost.”

Reporting by Alexander Marrow; Additional report by Darya Korsunskaya; Edited by Catherine Evans

Our standards: Thomson Reuters Trust Principles.

2023-02-23 12:07:24
Source – reuters

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