[Analyse] What consequences will the sanctions have for the Russian economy?

Russia, rich in raw materials, has yet to endure new economic disasters that it has brought upon itself. But this will not be done without harming its population or further reducing its chances of future prosperity.

The Russian president on Wednesday pledged financial assistance to Russian households and businesses to cope with the avalanche of economic sanctions their country has faced since the invasion of Ukraine began. In particular, he promised to raise “living wages, salaries of civil servants” and pensions, according to Agence France-Presse, and even “reduce poverty and inequality.” “Of course, the new reality will require profound structural changes in our economy,” he acknowledged. “It will be difficult,” but it will allow us to be more independent from Western countries.

The economic and financial sanctions that have been imposed on Russia since the crisis began are the heaviest imposed on a great power since World War II, the Peterson Institute for International Economics recalled again this week. We are talking about at least 5,500 measures that include a commercial embargo on the sale or purchase of certain goods (fossil fuels, weapons, technology, etc.), the freezing of Russian assets abroad, or cutting off the country from important financial channels.

To better understand the war in Ukraine

It is still difficult to predict the consequences that all these measures will have, noted this week wall street magazine, firstly, because it is too early to have official statistics, and also because the Kremlin is not interested in making them public. Expert estimates range from this year’s economic contraction of 6.2% according to Standard & Poor’s, from 13.4% to 24% for Moody’s, to as much as 33% according to the Institute of International Finance, suggesting a bigger shock. terrible Russian financial crisis of the late 1990s (-10%). “This is a monstrous act of self-destruction,” one of these experts noted.

summer in april

The ruble has already lost at least half its value, leading to skyrocketing import prices and the risk of catapulting inflation to a peak. At last count, more than 400 foreign companies have left Russia, at least temporarily, either because they were targeted directly, because they feared an indirect strike, or to protect their brand image. For everyone else, hard times will come when domestic demand collapses and supply chains are interrupted. Workers at AvtoVAZ, the country’s leading car manufacturer, learned this week that their summer vacation, normally scheduled between July 25 and August 14, will finally be pushed back to early next month due to a shortage of parts to build.

Experts warn that Russia, a major producer of fossil fuels, grains and minerals that the global economy craves, will continue to find buyers abroad. Moreover, Europe cannot yet do without its energy. But also because other countries, including China and India, are less observant of the fate of Ukraine, especially since they know they will be able to demand generous discounts.

Everything will depend on what Europe and China do. But Russia can hold out for a long time.

However, there is a limit to the fuel that can be diverted to another location, in part due to the lack of sufficient pipelines seen on Thursday. Economist. And then, even China cannot always offer products and technologies at the same level as Westerners. In addition, Chinese companies also do not want to subject themselves to sanctions.

Long term costs

In any case, the lesson Vladimir Putin learned from the sanctions placed on him when he annexed Crimea in 2014 is that it is best to depend on others as little as possible and instead strive for security and peace. Peace. It actually came close to it in terms of basic needs as well as government finances. This was much less convincing in terms of technology, in addition to leading to a relative impoverishment of the population.

“Everything will depend on what Europe and China do. But Russia can hold out for a long time,” Sergey Guriev, a former adviser to President Putin and now a professor at the Paris department of science and science, explained last week in an interview with the Brueghel Institute, a European center for economic research.

In any case, this will lead to a huge economic downturn, the expert believes. Especially for the poorest segments of the population, whom their president thought to charm with his military campaign. But also in the long term, in particular, with all these brains fleeing the country, investors turning away from it and technologies that Russia will not have access to. “You know, dictatorships are already expensive in terms of the army, the means of repression and corruption. But here Putin may well throw the Russian economy back 30 years. »

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