Russia’s economy begins to crack under the weight of sanctions

Moscow (awp/afp) – Default risk, auto collapse, inflation… The Russian economy is beginning to crack after weeks of increasingly tough sanctions, according to data released Wednesday.

If the cascading announcements of the departure of international groups from Russia have made a splash, they have not yet led to serious consequences for real economic activity.

But weeks after the volleys of sanctions peaked since the start of the Russian offensive into Ukraine, their effects are now beginning to be felt.

As such, the Russian Finance Ministry announced that it had repaid nearly $650 million in ruble debt after a foreign bank refused to make a dollar payment, exposing it to the risk of default after a 30-day grace period. beginning April 4th.

For several weeks, Russia managed to avert the danger of a default, as the US Treasury allowed foreign currency held by Moscow abroad to be used to pay off foreign debt. But this week he tightened sanctions by no longer accepting dollars held by Moscow in US banks.

The ministry added that these debts would therefore be paid in rubles to creditors from “hostile countries” into Russian accounts, adding that “Russian financial authorities will make decisions allowing investors to convert ruble funds from these accounts into foreign currency.” access to foreign currency accounts abroad has been restored.

“There is no basis for a real default,” Kremlin spokesman Dmitry Peskov, for his part, said during a press briefing on Wednesday, saying that “Russia has all the resources it needs to pay off its debts.”

“Putin impoverishes Russia”

“It’s hard for Russia to avoid a sovereign default,” said Timothy Ash, an analyst at Blue Bay Asset, nonetheless. “A default is a default. The markets will judge it that way. The investors were not paid. They will remember it.”

“A default may not immediately bring down the Russian markets and economy, but will have devastating consequences in the long term,” adds this economist, who foresees “impact on investment, economic growth, living standards,” among other things.

“Putin has been impoverishing Russia for years,” he concludes.

In another shocking figure of the day, new car sales plummeted 62.9% year-on-year in March, a symbol that the entire sector is in a bind as Westerners in particular ban the export of parts to Russia.

Many manufacturers have also announced that they will stop selling parts or cars to Russia, such as Audi, Honda, Jaguar or Porsche. Others have announced cessation of production, such as Renault, BMW, Ford, Hyundai, Mercedes, Volkswagen or Volvo.

The factories of AvtoVAZ (Renault-Nissan group), the leading car manufacturer in Russia, which employ tens of thousands of people, have been practically stopped due to a shortage of imported components.

According to Avtostat, quoted by Kommersant, in March, prices for new cars rose by an average of 40%, and for expensive cars – up to 60%, the supply of which is limited more by logistical problems than by fines.

Inflation data for March will be published on Wednesday evening and is expected to break records.

Aleksey Vedev, a junior research fellow at the Gaidar Institute at the RANEPA in Moscow, estimates that it will be around 20% per year, after exceeding 9% in February for the year.

“It’s been a month of panic among consumers” who have rushed to products they foresee disappearing, he said. “As the situation stabilizes, the objective processes at work will become clearer.”

And according to Andrey Yakovlev from the Moscow Higher School of Economics, the real crisis will not reach the real economy until summer or autumn: “in May, most likely, a large number of enterprises will stop” due to a shortage of imported components, in particular in the automotive industry, in which employ hundreds of thousands of people.


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