Western sanctions against Russia have been escalating for several weeks. But for Russian President Vladimir Putin, these measures against Russia have led to a “Economic Deterioration in the West”.
The statement comes as European Commission President Ursula von der Leyen explained yesterday that the sixth wave of retaliatory measures against Moscow’s invasion of Ukraine could this time target Russian banks, in particular Sberbank, as well like oil.
“We are looking more at the banking sector, in particular at Sberbank, which represents 37% of the Russian banking sector. There are also energy issues,” Ursula von der Leyen told the Sunday newspaper Bild am Sonntag, who asked her to detail the key points of the new sanctions.
The European Union has spared, for the moment, Russia’s largest bank because it represents, along with Gazprombank, one of the main payment channels for Russian oil and gas, which the countries of the bloc buy despite the conflict in Ukraine.
Rising inflation in Russia
In a speech on the state of the Russian economy, Russian President Vladimir Putin added that inflation in his country was stabilizing and demand had returned to normal. Western countries have decided on unprecedented sanctions against Russia, its companies and its financial system since the beginning, on February 24, of what Moscow presents as a “special military operation” but that kyiv considers an invasion.
“The official forecast should result in a contraction of more than 10% (of GDP)“, in 2022, Alexei Kudrin, former Finance Minister of Vladimir Putin between 2000 and 2011, warned last week, quoted by the Russian news agency Ria Novesti.
Before Vladimir Putin’s speech on Monday, Russian central bank governor Elvira Nabiullina said she was considering another cut in interest rates, saying it would take around two years to bring inflation to the 4% target they have set for themselves. The authorities. Consumer price inflation in Russia reached 17% in March.
Today, Russian citizens spend an average of 40% of their disposable income on food, about twice as much as before the war. Reuters the director of the liaison office of the United Nations food agency in Russia. Russian government data shows that annual food inflation hit 18.75% on April 1.
Faced with inflation, the Russian central bank had raised its main reference rate to 20% on February 28, compared to the previous 9.5%, after the fall of the ruble caused by the start of the conflict and the first Western sanctions, but it fell to 17% on April 8.
“We must be able to reduce the key rate more quickly”said Elvira Nabioullina in a speech to deputies on Monday. “We must create the conditions to increase the availability of credit in the economy”.
Risk of default by the Russian economy?
The sanctions, he said, have so far mainly affected financial markets. “But now they are going to start to affect the economy more and more.” He said that Moscow planned to initiate legal proceedings against the blockade of Russian assets, including gold and foreign currency belonging to Russian residents.
For the moment, Russia has ruled out the risk of default despite the sanctions imposed against it. And this because the US Treasury allowed the use of foreign currency held by Moscow abroad to settle foreign debts. Recently, that is no longer the case. In fact, the US ministry tightened sanctions in early April, not accepting more dollars held by Moscow in US banks.
A decision made when Russia had to pay a debt of almost 650 million dollars, specifically two bonds maturing in 2022 and 2042. Therefore, it settled them on April 4, but in rubles and not in US dollars, the minister announced. of Russian Finance, Anton. Silouanov. For the Moody’s agency, this payment in rubles “modifies the payment terms compared to the initial contracts and therefore can be considered as a breach” if Moscow does not cancel this debt before May 4, that is, the end of the grace period.
The minister indicated that Russia’s external debt represented around 4.5 to 4.7 billion rubles (about 52 billion euros at current exchange rates), or 20% of the total public debt.
In the opinion of several analysts, a government default now seems close, even inevitable. As a reminder, defaulting on its foreign debt excludes a country from financial markets and complicates its return for years.
“Suffocate the Russian economy”
Last Thursday before the Duma, the Russian Prime Minister, Mikhail Michoustin, he acknowledged that the sanctions put Russia in great difficulties. “The current situation could certainly be called the most difficult for Russia in three decades,” he said, adding that “such sanctions had never been used [contre la Russie]even in the darkest hours of the Cold War”.
Last Thursday, April 7, the US president estimated that “no sanctions [américaines] will certainly end fifteen years of economic progress in Russia” et “we will stifle (their) ability to grow for years,” he said at a union conference. Visiting kyiv last week, European Commission President Ursula von der Leyen predicted a bleak future for Russia. According to her, the country led by Vladimir Putin is threatened with “decomposition” due to increasingly severe sanctions, unlike Ukraine, which has a “European Future”.
A costly war for Western economies
On the Western side, it is true that the war in Ukraine is costing developed countries dearly. In France, more than a month after the start of the conflict, the indicators turn red one after another. In its latest economic report published on Tuesday, March 12, Banque de France economists revised down their GDP growth forecasts for the first quarter, from 0.5% to 0.25% (-0.25 points).
For their part, Allianz economists have also lowered their growth projections, but this time for 2022 by 1 point, from 4% to 3% in their central scenario. If the war worsens, the French economy could fall into recession at -2.3%.
At the European level, the war in Ukraine could amputate”a point to a point and a half” of growth to Europe, depending on the duration of the conflict, while inflation could increase even more”from two points to two and a half points”OECD chief economist Laurence Boone said last week.
If the French specifies that “the degree of uncertainty is high” Regarding these estimates, he considers that it will be necessary to carry out “an in-depth reflection on fundamental topics, including food, energy and digital security, as well as the organization of trade”.
The truth is that the war in Ukraine and the sanctions imposed on Russia are disrupting international trade. It should already collapse by half in 2022, warns the World Trade Organization (WTO). In the longer term, it is in fact a “disintegration” of the world trading system that threatens. Two blocks based on geopolitical issues would then emerge, one centered on the United States and the other around China, whose exchanges between them would be extremely limited. Such a scenario would reduce global welfare in 2040 by 5%.