Western sanctions deprive the economy of 15 years of progress

For Russia, this is a leap back. According to a report by the Institute of International Finance (IIF for Institute of International Finance) published on Wednesday (June 8th), sanctions against Moscow following the invasion of Ukraine are in the process of erasing fifteen years of economic progress and three decades of integration with the West.

Financial sanctions, including a reduction in Moscow’s ability to repay its foreign debt, rising prices and the exit of foreign companies from the country, are slowing domestic demand. “Thus worsening the economic prospects in the short, medium and long term.”

This is noted by the authors of the report “Some of the most significant consequences have not yet been felt.” In its latest analysis, the IIF, in particular, predicts that the Russian economy will shrink by 15% this year and another 3% in 2023.

However, the impact of sanctions remains difficult to predict, as they are being replaced, on the one hand, by potential new sanctions and, on the other hand, by Russia’s possible response, particularly in the energy sector.

IIF economist Elina Ribakova also noted that sanctions disrupt global value chains. She sees a “The collapse of 30 years of investment and ties with Europe.”

According to IIR Executive Vice President Clay Lowry, assessing the effectiveness of sanctions against Russia depends on what governments are trying to achieve. “If by success we mean harm to the economy (…), then these sanctions certainly have an impact,” and that should increase, he said. However, in the past, sanctions have not been effective in changing policy, he added.

The automotive sector was particularly affected

The automobile industry is one of Russia’s industrial sectors, which suffers the most from the impact of Western sanctions. This affects new car sales: 24,268 new cars were sold in May, according to the European Business Association (AEB). This is 52% less than in April and even 83.5% less than a year. The collapse in sales began in March after Western countries imposed tough sanctions on the industry, including a ban on exports of spare parts to Russia.

The withdrawal of many foreign brands and the cessation of spare parts supplies also have serious consequences, forcing many local factories to shut down. In April, car production fell by 85.4% year on year.

Since the introduction of Russian troops into Ukraine on February 24, many manufacturers have also announced the cessation of sales of components or cars to Russia or the cessation of production in Russia. Inflation and ruble instability have also reduced Russia’s ability to buy imported products, a fortiori cars.

Inflation in Russia has fallen, but is still very high

Western sanctions against Russia when its troops entered Ukraine in late February caused inflation to rise. Reaching a record in April, 17.8%, in May it fell slightly to 17.1%, according to Rosstat, the service Russian state statistics, published this Wednesday.

The growth of food prices continued to accelerate, in May for the year increased by 21.5%, including basic products such as sugar (+ 61.4%), cereals (+ 36.3%), pasta (+29.2 %), fruit. and vegetables (+ 26.3%).

Throughout 2022, the Central Bank predicted that annual inflation could reach 23% before slowing next year and returning to the 4% target in 2024. However, in May, he announced a slower-than-expected slowdown.

In late May, President Vladimir Putin assured him that inflation would not exceed 15% by the end of 2022, announcing an increase in pensions and social minimums. Rising prices have already significantly undermined the purchasing power of Russians with small savings and led to a decline in their consumption by almost 10% in April.

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RUSSIA EXPANDS LIST OF AMONGED FOR AMERICAN ENTRY

In response to sanctions imposed by Washington, Russian diplomacy on Monday expanded the list of US citizens barred from entering Russia, including Finance Minister Janet Ellen.

In late May, Moscow released a list of 963 people barred from entering Russia, including US President Joe Biden, Facebook founder Mark Zuckerberg and actor Morgan Freeman.

The new list includes 61 names, mostly government and political officials, as well as several executives of large companies, mostly in the defense and energy sectors.

In addition to Janet Ellen, the sanctions targeted Energy Minister Jennifer Granholm or OneWeb CEO Neil Masterson. The list also includes CEOs of Universal Pictures and Fitch.

(from AFP)