At the beginning of the second year of the war, due to increasingly harsh sanctions from the West, the Russian government’s revenues began to decrease, and the economy was barely growing, he writes The Wall Street Journal.
Exports are not what they used to be
Gas and oil exports, which were of great importance to the country, lost their most important customers. At the same time, the Russian ruble devalued and fell by more than 20% since November against the dollar. The labor force has decreased, due to the fact that young people are sent to the front or flee the country for fear of not being drafted. And uncertainty has reduced business investment.
In January and February of this year, revenues from oil and gas taxes, which account for almost half of total budget revenues, fell by 46%, while state spending increased by more than 50%.
Analysts estimate that the fiscal break-even price for Russia’s oil, which it would need to balance its accounts, has risen to more than $100 a barrel.
“The Russian economy is entering a period of regression, which will last a long time,” said Alexandra Prokopenko, a representative of the Russian Central Bank who left the country shortly after the invasion.
There will be no money next year, we need foreign investors.
Author: Russian billionaire Oleg Deripaska at the economic conference
Unattractive to investors and without allies in the market
The start of the war in Ukraine alienated the European market and Western investors withdrew. Under these conditions, Moscow would gradually become more dependent on China, he writes The Wall Street Journal.
Despite Russia’s short-term resistance, the long-term scenario is bleak: Moscow will be much more domestically focused and excessively dependent on China.
Author: Maria Șaghina, senior researcher at the International Institute for Strategic Studies in London
Much of this bleak outlook would be due to the failed statements Putin made as recently as last year. His strategy was to use Russian energy supplies to limit Western European support for Ukraine.
Despite expectations, European governments, instead of tempering support for Kiev, turned to find new sources of natural gas and oil. Most Russian gas flows to Europe have stopped, and after an initial spike, global gas prices have fallen.
As a result, government energy revenues nearly halved in the first two months of this year compared to last year, while the budget deficit widened. The fiscal deficit reached $34 billion in these first two months, equivalent to more than 1.5 percent of the country’s total economic output.
The workforce crisis
The country’s industry is in its worst labor crisis since 1993, the Moscow-based Gaidar Institute for Economic Policy said. About half of businesses face a labor shortage, according to the central bank. At the same time, this aspect would hinder military production.
In this sense, there was an attempt to substitute imports with those manufactured in the country. But much of the equipment they currently have, telecommunications and oil drilling software, is imported.
It’s a bit like going back to Soviet times, doing everything ourselves. It will be nearly impossible to adequately replace what is missing.
Author: Vasili Astrov, economist at the Institute for International Economic Studies in Vienna
Central bank analysts have called the postwar reality “reverse industrialization,” suggesting a reliance on less sophisticated technology.
With all these changes, the Russian economy is becoming more and more dependent on the state.
There is growth. At the chapter – military production
Much of the increase in industrial production now comes from factories producing rockets, artillery shells, and military clothing, replacing the huge quantities used in war.
Although official statistics do not define military production, using the term “finished metal goods” production, it grew by 7% last year. Production of computers, electronics and optics, another line said to include military production, has up 2 percent year-over-year and 41 percent in December from Nov. In contrast, auto production fell about 45 percent year-over-year.
Military production would only succeed in masking the problems: “This is not real, productive growth and does not contribute to the development of the economy,” said Prokopenko, a former representative of the Central Bank of Russia.
Figures and plans do not have a common denominator
Moscow currently says it will cut oil production by 5% by June from previous levels and would sell the oil at a discount to global market prices. Moreover, ways were found to sell the oil to China and India.
The government can still borrow domestically, and the state budget still has $147 billion, even after shrinking by $28 billion from before the invasion, according to The Wall Street Journal.
The International Monetary Fund estimated that Russia’s potential growth rate was about 3.5 percent before 2014, the year it annexed Crimea from Ukraine. That has now fallen to about 1 percent, some economists say.
For an economy like Russia’s, 1% means nothing, it’s not even a maintenance level.
Author: Alexandra Prokopenko, former representative of the Central Bank of Russia
Falling exports, a tight labor market and rising government spending are raising inflation risks, the central bank said this month. Inflation, recorded in Russia, was about 11% in February compared to the same month last year.
The International Monetary Fund said that by 2027, economic output would be about 7 percent lower than pre-war data indicated. And most analysts predict a further drop in GDP.
The loss of human capital, isolation from global financial markets and poor access to advanced technology will complicate the Russian economic situation.
Author: International Monetary Fund
Rystad Energy, a consulting firm, expects investment in Russian oil and gas exploration and production to fall to $33 billion this year from $57 billion expected before the invasion.
Russia’s total oil production, which was about 12 million barrels per day in 2019, could fall to between 7 and 9 million per day by 2035, according to analysts. The Wall Street Journal.
We are not talking about a crisis of one or two years. The Russian economy is starting to go on a different trajectory.
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p class=”mt-4 text-c707070 text-s14-l130 d3xl:text-s15-l130 font-onest”>Author: Vasili Astrov, economist at the Vienna Institute
