Russian economy, a fortress with a fragile foundation

St. Petersburg, its sleepless nights and its limousines with tinted windows… Every year in June, for twenty-five years now, the Economic Forum has been the main business meeting place in Russia, overlooking little Davos. There, between foreign investors and ministers, the entire economic elite rushes. But this year, large Western companies will be absent, and foreign guests will come only from Venezuela or Kazakhstan…

No matter what, this forum, which begins on June 15, will continue to operate as if nothing had happened. As evidence, he chose as his theme: “New Opportunities in a New World.” The official discourse is, in fact, that Russia can do without the West, that it can redirect its exports and produce itself what it needs.

Energy makes a billion a day

The reality is quite different. Of course, Russia was able to overcome the first shock caused by the sanctions. But the economy is expected to face serious difficulties in the medium term. “At the moment, the impact of sanctions on the daily life of most households is not visible, but problems should accumulate from autumn,” Judge Ivan Timofeev, ex-director of the Russian International Affairs Council, a think tank close to the authorities.

Russia was able to cushion the first shock thanks to oil and gas revenues. “The latter ensures a very large influx of foreign currency into Russia,” notes Julien Vercuy, economist and professor at the National Institute of Oriental Languages ​​and Civilizations (Inalco). One hundred days after the start of the conflict, the country exported 93 billion euros worth of energy, or almost a billion a day. Thanks to this influx, Russia was able to stop the fall of the ruble and avoid the collapse of the banking sector.

Surge of inflation

But the hardest part is yet to come: “Living conditions are deteriorating. Inflation is expected to hit nearly 20% year on year, flagship companies that symbolized Russia’s integration into the global economy are closing, and most people’s incomes could fall by as much as 10% during 2022.” analyzed by Julien Vercuy.

In the medium term, the sanctions should highlight the main weakness of the Russian economy: the lack of investment to master core technologies. Due to the lack of an automotive supplier, Russia, for example, has just allowed the production of cars that will no longer have airbags or brake assist, a jump of twenty years. The country’s civilian aircraft may soon be on the ground due to a lack of spare parts. “The aircraft industry was one of the pillars of the Soviet industry, but today production has become global and is highly dependent on parts from the US or Europe,” notes Grzegorz Silewicz, Head of Economic Research for Central and Eastern Europe at Coface.

Parallel circuits

The same goes for electronic components. “Russia produces a lot of raw materials, but exports it to other countries that process it into semiconductors.” adds Grzegorz Sielewicz.

However, most major manufacturers such as Samsung, Intel or TSMC have banned the import of their chips into Russia. To supply itself, Russia intends to use parallel schemes in violation of international rules. It has already authorized its companies to buy semiconductors without the consent of the patent holders. And it will go through Chinese, Turkish or Indian resellers. This mechanism will make access to these critical technologies more expensive and difficult.

Fifteen years of growth destroyed

The International Institute of Finance, which brings together banks and investment funds from around the world, predicts that the Russian economy will shrink by 15% in 2022, consumption will fall by 18%, and private investment by 25%. “Current events will nullify Russia’s economic achievements over the past fifteen years,” He wrote.

Isolation from Western countries will force Russia to turn more to China and India. A particularly symbolic fact: in a few weeks, since February 24, India has become the second buyer of Russian oil, twice surpassing Germany. Indians get a 30% discount on the price as shoppers no longer push each other. China has already become the first buyer country. “This crisis is changing Russia’s relationship with the rest of the world.confirms Ivan Timofeev. This will place Russia in a financial space that is more China-centric. »


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