The International Monetary Fund (IMF) is somewhat correcting the situation. The institution estimates that the Russian economy will be less penalized by international sanctions than it predicted in April. The shock is nevertheless particularly felt.
Russia is doing better than expected, read the IMF’s recent forecasts released last week. According to the institution, the contraction of Russian GDP this year would be more like 6%, less than the 8.5% fall put forward in the previous forecasts published in April. “It remains a strong recession for Russia in 2022”, took care to qualify the chief economist of the IMF, Pierre-Olivier Gourinchas, during an interview with Agence France-Presse.
This deep recession is also to be put in the perspective of an expected growth of 2.8% of Russian GDP in 2022 estimated by the IMF in its January update, before the outbreak of the invasion in Ukraine on February 24. Seen otherwise, from the fourth quarter of 2021 to the corresponding quarter of 2022, the drain on GDP would reach 13.9%.
And the cumulative effect of the sanctions being what it is, the IMF speaks of an additional plunge of 3.5% in 2023. The institution rather evoked a slide of 2.3% in its April projections, and growth of 2.1% in those of January.
More recently, the volume of Russian gas flowing to Europe has fallen sharply to about 40% of its level a year ago, contributing to a sharp rise in natural gas prices in June. “The contraction of the Russian economy in the second quarter is estimated to have been less than expected, with crude oil exports and non-energy exports holding up better than expected. Moreover, domestic demand is showing some resilience, as the effect of sanctions on the domestic financial sector has been limited and the labor market has contracted less than expected,” the IMF report continues. “The Russian Central Bank and policymakers were able to avoid a bank panic or a financial collapse when the sanctions were imposed,” added Pierre-Olivier Gourinchas. And rising oil and gas prices “provide a huge amount of revenue to the Russian economy and it has helped sustain their economy.”
In May, revenue from Russian oil exports soared 11% despite volume falling 3%, the International Energy Agency showed. Between March and July 2022, revenues from Russian gas and oil exports to the European Union were twice as high as the average for previous years over the period, resumes The echoes.
Full of petrodollars
According to data from Russia’s central bank, the trade surplus hit 138.5 billion US dollars in the first half, including a record 70.1 billion in the second quarter. Between January and June, the current account has increased by 3.5 times compared to the same period in 2021 under the impact of a collapse in imports, with the increase in income from energy and raw materials exports helping to offset the repercussions. Sanctions.
Even if Russia sells its oil at a discount to China and India, it fills up thanks to the explosion of energy prices. The Bloomberg agency takes up the projections of American analysts that the current account surplus could exceed 200 billion and reach a record 240 billion in 2022. According to different scenarios, the oil and gas windfall from which Vladimir Putin would benefit is estimated at more than 320 billion this year if these energies continue to flow.
As for the financial system, the consequences of the exclusion of certain banks from the Swift interbank network remain limited. After having implemented exchange controls and raised its key rate to 20%, the Russian central bank has since reduced this rate to 8%, below its pre-invasion level, and has relaxed its currency control, which is difficult to sustain over time, to mitigate the strengthening of the ruble and echo a slowdown in inflation.
If the coffers of Moscow are full of petrodollars, the fact remains that ultimately, only Russia would be in economic decline this year and next year among the list of countries selected by the IMF. Inflation reached 15.9% over one year in June and consumption continued to decline in May to fall back by 10% over one year, according to the Rosstat federal statistics service. Already, before the offensive in Ukraine, the Russian population was struggling with inflation of more than 8% and a decline in purchasing power that varied between 2 and 5% per year since the annexation of Crimea in 2014. “GDP per capita in 2020 was barely higher than in 2013, forcing a 10% decline in purchasing power since 2014,” writes Economic alternatives.
And before the start of the hostilities unleashed by Vladimir Putin, the Russian economy suffered from a weak manufacturing sector, a technological backwardness and significant inequalities, income and wealth.