This is a leap back for Russia. According to a report by the Institute of International Finance (IIF for Institute of International Finance), published on Wednesday, June 8, the sanctions imposed on Moscow after 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 decrease in Moscow’s ability to repay its external debt, rising prices and the exit of foreign companies from the country are slowing down domestic demand, “thus clouding the economic outlook in the short, medium and long term.”
The authors of the report note that “Some of the most significant impacts are yet to be 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 the sanctions is still difficult to predict as they change, on the one hand due to potential new sanctions, and on the other hand due to the possible reaction of Russia, especially in the energy sector.
IIF economist Elina Rybakova also noted that sanctions disrupt global value chains. She sees “disintegration of 30 years of investments and ties with Europe”.
According to IIR Executive Vice President Clay Lowry, assessing the effectiveness of the sanctions imposed on Russia depends on what governments are trying to achieve. “If success is understood as harming the economy (…), then these sanctions certainly have an impact,” and it should increase, he said. However, sanctions have not proven effective in changing course in the past, he added.
The automotive sector has been particularly hard hit
The automotive industry is one of the industries in Russia most affected by Western sanctions. This is reflected in new car sales, with 24,268 new passenger cars sold in May, according to data released by the Association of European Businesses (AEB). This is 52% less than in April and even 83.5% less for the year. The collapse in sales began in March after Western countries imposed tough sanctions on this sector, in particular a ban on the export of spare parts to Russia.
The withdrawal of many foreign brands from the country and the cessation of the supply of spare parts also have serious consequences, forcing many local factories to stop. In April, car production fell 85.4% year-on-year.
Since the entry of Russian troops into Ukraine on February 24, many manufacturers have also announced that they will stop selling parts or vehicles to Russia or stop production in Russia. Inflation and the instability of the ruble also reduced the ability of Russians to buy imported products. especially cars.
Inflation in Russia has decreased, but is still very high
Western sanctions against Russia, when its troops entered Ukraine at the end of February, caused inflation to skyrocket. Having reached a record high of 17.8% in April, it dropped slightly in May to 17.1%. This is evidenced by the data of Rosstat. Russian state statistics, posted this Wednesday.
Growth in food prices continued to accelerate: in May they rose by 21.5% year-on-year, especially for staples such as sugar (+61.4%), cereals (+36.3%), pasta (+29 .2%), fruits. and vegetables (+26.3%).
Throughout 2022, the central bank has projected that annual inflation could reach 23% before slowing next year and returning to its 4% target in 2024. However, in May it reported a faster-than-expected slowdown.
At the end of May, President Vladimir Putin assured him that inflation would not exceed 15% by the end of 2022, while announcing an increase in pensions and social minimums. Rising prices have already significantly undermined the purchasing power of Russians with little savings, and led to a drop in their consumption by almost 10% in April for the year.
RUSSIA EXPANDS LIST OF AMERICANS WHO ARE ENTRY BANNED
In response to the sanctions imposed by Washington, Russian diplomacy on Monday expanded the list of American citizens who are banned from entering Russia, including, in particular, Treasury Secretary Janet Yellen.
At the end of May, Moscow released a list of 963 people banned from entering Russia, including US President Joe Biden, Facebook founder Mark Zuckerberg and actor Morgan Freeman.
The new list includes 61 names, mostly state and political figures, as well as several heads of large companies, mainly in the defense and energy sectors.
In addition to Janet Yellen, the sanctions included Energy Secretary Jennifer Granholm and OneWeb CEO Neil Masterson. Executives from Universal Pictures and the Fitch rating agency have also been added to the list.