Russian President Vladimir Putin speaks at a press conference after a meeting of the State Council on Youth Policy in Moscow, Russia, December 22, 2022.
Sergei Gneev | Sputnik | Reuters
The latest Western sanctions against Russia over its invasion of Ukraine are beginning to weigh on the country’s economy.
Minister of Finance of Russia Anton Siluanov reportedly told journalists on Tuesday Oil price caps imposed by the G-7 (G7) major economies, the European Union and Australia are weighing on Russia’s export earnings and could push Moscow’s budget deficit higher than expected at 2% next year. have a nature
Related investment news
Price caps on Russia’s crude and refined oil exports could force the Kremlin to cut production by 5% to 7% next year, the RIA news agency quoted Deputy Prime Minister Alexander Novak on Friday. . But Moscow should be able to meet the shortfall through domestic bond issuance and a contingency fund, officials suggest.
The EU27 also agreed in June to ban the purchase of Russian oil from December 5.
“It is still too early to fully assess the impact of the G7 oil price cap and the EU’s ban on Russian oil imports, which came into effect on December 5, but the first signs are that the Russian economy is in trouble,” said Nicholas Farr. It suggests that you are starting to feel it,” he said. , Emerging European Economist at Capital Economics.
“High-frequency data show that Russian oil exports have fallen since sanctions were introduced, and the spread between Brent and Ural oil prices has widened to a six-month high. [last] week. “
Farr suggested this would exacerbate the blow to Russia’s energy revenues from falling global prices in recent months.Brent crude on international benchmarks peaked at about $98 a barrel in October. to about $77 earlier this month before recovering to about $84.50 a barrel in Europe by Tuesday morning.
Meanwhile, the Russian ruble has become the worst performing EM currency after falling almost 10% against the dollar last week, beating expectations for most of the year.
Farr suggested that the main consequence of the ruble’s depreciation would be upward pressure on inflation due to higher import costs. The Bank of Russia (CBR) ended a series of rate cuts in October and kept monetary policy unchanged in December, warning that inflationary risks ‘dominated’ over disinflationary risks. Did.
If the ruble continues to fall in 2023, the CBR could be forced to consider reintroducing rate hikes to keep inflation in check, Farr suggested. 2023.
“Russia has benefited greatly from a terms of trade boost from rising commodity prices in 2022, but … support for this economy now appears to be fading,” Farr said in a note on Friday. .
“We believe the Russian economy will contract again in 2023. Meanwhile, declining energy income means that the Russian balance sheet will be under pressure.”
Capital Economics, which has been a key pillar of Russia’s economic strength this year, expects the current account surplus to “collapse rapidly in the coming months.”
“There is a high risk that a major external rebalancing will be required from 2024, and growth will remain very sluggish,” Farr added.
