August 10, 2022

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The analysis predicts a "collapse of Russia's economic systems" due to sanctions

The analysis predicts a “collapse of Russia’s economic systems” due to sanctions

Expected Agency Analysis Reuters The collapse of Russia’s economic systems over time due to sanctions, the company said Russia “has built a huge financial system over the past seven years, but its economy is unlikely to withstand the combined sanctions of the West.”

“The view that Russia (by sanctions) will not be affected is wrong. Russia may not directly realize the negative consequences, but in the long run sanctions will block its capabilities,” said Christopher Granville, director of TS Lombard Consulting. Russia monitoring ..

Sanctions include freezing the assets of Russian banks and businessmen, suspending the $ 11 billion North Stream gas pipeline project that extends to Germany, and restricting exports of advanced technologies to Russia.

The analysis points to the weak impact of sanctions, and they “will not immediately affect the economy with $ 643 billion in hard currency reserves.”

Because of this, Russia has an “anti-economy” and has a current account surplus of 5 percent of GDP and debt of 20 percent of GDP, making it one of the lowest countries in the world. Only half of Russia’s obligations are in dollars, up from 80 percent two decades ago.

These figures are the result of years of savings, as sanctions were imposed following Putin’s decision to annex Crimea in 2014.

According to Cronville, the increase in oil prices will benefit Russia this year from 1.5 trillion rubles ($ 17.2 billion) in taxes on the profits of energy companies.

“Russia will pay the price for this kind of self-sufficiency as it is isolated from the economy, markets and global investment,” he said.

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“Russia will be seen as a hostile country that is fundamentally isolated from global economic flows, investment and the normal economic relations that build people’s living standards, income, productivity and corporate profit,” he said.

The analysis points out that there are “signs of economic weakness”, including that the income of Russian households is still lower than in 2014. In 2019, the World Bank estimated Russia’s annual production at $ 1.66 trillion, which is lower. Compared to 2013, the value was $ 2.2 trillion.

Russia’s per capita GDP, which was China’s per capita “double” in 2013, was noted by Sergei Kurive, a professor of economics at the University of Frances Sciences and former chief economist at the Bank of Europe’s restructuring and development.

“Russia was a high-income country in 2013 and was active in negotiations for membership in the Organization for Economic Co-operation and Development, but has now returned to being a middle-income country,” he said.

According to the analysis, Russia also sees a “declining number of foreign investors”. A study by JPMorgan showed that foreign reserves of ruble bonds were at a two-decade low and that, according to Copley Fund estimates, equity investments had not fully returned to the pre-merger level.

The “stimulus premium” demanded by investors to hold the Russian dollar debt is 13 percentage points higher than the US Treasuries, which is almost three times higher than the emerging market average.

Geoffrey Scott, an expert on trade and sanctions at the Peterson Institute for International Economics, said:

Major sanctions include suspending Russia’s access to the Global Payments Organization (SWIFT) and a complete ban on investment in Russia.

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Loss of access to the SWIFT system can complicate export and import charges and prevent the payment of stock “coupons”, which can lead to technical errors. JPMorgan expects sanctions to slow GDP growth to 3.5 percent in the second half of 2022.

The bank added that limited access to foreign capital would force oil companies to rely on prepaid deals and face higher capital costs. The “slow decline in living standards” could provoke public discontent and threaten to escalate protests.

“Self-sufficiency is not enough for progress,” say analysts at the Bernberg Investment Bank. They added that “overcoming Russia, which is mired in a recession, will be a major challenge for Europe and the United States in the future.”