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The hole in Putin's pocket

2023-02-11T10:46:46.729Z


Various economic data suggest that Western sanctions are beginning to hit the Russian economy harder, but its resilience should not be underestimated.


At the beginning of the week, data published by the Russian Ministry of Finance pointed out that in the month of January alone Russia accumulated a deficit of more than 20,000 million euros, 60% of what was budgeted for all of 2023. The income from the Gas and oil sales were 46% lower than in the same month of the previous year, while expenses increased 59% due to the demands of the war.

The Central Bank indicated that it will probably have to raise interest rates.

And, this Friday, the Kremlin announced that in March it will cut its crude production by 500,000 barrels per day, around 5% of its total extraction, possibly a change in strategy partly linked to the difficulty of placing all its exports after the latest western sanctions.

Taken together, they appear to be signs that the Western sanctioning measures adopted in retaliation for the Russian invasion, and especially those that hit the hydrocarbons sector, are taking a considerable leap in effectiveness.

Until now, the Russian economy has taken a hit, but the country has managed to avoid the collapse some imagined when concerted sanctions and stampeding companies began.

The IMF has recently estimated that Russian GDP contracted by 2.2% in 2022, much lower than the projections made in the early stages of the invasion.

The ruble, for its part, held up.

The Western retaliation, therefore, until now had cost Russia a few points of GDP and serious difficulties in sustaining production in certain sectors, but it was not a decisive blow.

This may be changing.

In parallel, it should be noted that Europe seems to have won the battle for gas, avoiding the risk of supply cuts, and the price in the TTF market is getting better and better, now standing at 2021 levels. GDP and employment data have been better than expected in the EU in recent months, and inflation is declining.

In short, there are elements to consider that the fundamental economic battlefield seems to be leaning unfavorably for Russia.

This should not, however, lead to underestimating the persistent threat that the Kremlin represents.

Not only because the injection of fresh Russian forces may soon be felt on the Ukrainian fronts, but because the Putin regime is gradually reorienting the Russian economy and society to sustain a long-suffering war effort.

Forced mobilizations, reorientation of economic activity at the service of the armed forces, excise taxes, reorganization of its international trade with willing partners such as China, India or Iran, a historic willingness to endure enormous sacrifices: the range is wide.

At the same time, the economic damage that the war is inflicting not only, obviously, on Ukraine, which needs enormous financial as well as military support, but also on neighboring countries should not be underestimated - as shown by the turmoil in Moldova, partly linked to to economic difficulties—and to the EU itself.

The bloc has avoided the darkest prospects, but the accumulated wounds are serious, and the road forward rocky.

Although inflation is subsiding, it is not over, and the damage already done is great, with its impact on purchasing power that is contracting sharply, on savings that are evaporating, on variable-rate mortgages that are strangling so many families.

And it cannot be ruled out that crude oil prices will rise now, and gas prices will do so next winter,

We probably won't be able to cope with reservations as full as this.

There is no systemic crisis, but there is enough social suffering.

The dynamics are hopeful, but there is no reason to lower our guard one millimeter.

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Source: elparis

All news articles on 2023-02-11

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