Except translation, this story has not been edited by achinews staff and is published from a syndicated feed.
Russia’s economy is showing signs of strain amid high inflation and a tightening labor market, which G7 and European officials say is proof that western sanctions over the war in Ukraine are working.
Russia’s central bank, which is independent of the government, issued a new warning on Friday. The bank’s governor, Elvira Nabiullina, said the economy remained “significantly overheated,” after members raised its key interest rate to 18 percent – the highest level in more than two years – and said inflation annualized has risen to nine percent.
“In order for inflation to start falling again, monetary policy needs to be tightened further,” the bank said in a statement, hinting at even more rate rises.
The rate decision came days after eight European finance ministers wrote in The Guardian this week that Russia was experiencing what they called a “re-Sovietization of the economy.” They said that reports of GDP growth, which the Kremlin has pointed to as proof that the economy is booming, tell only one side of the story.
“Looking more closely at the signals, it becomes clear that not everything is as rosy with the Russian economy as Moscow would have us believe,” the article attributed to the finance ministers from Sweden, Denmark, Estonia, Finland, Latvia, Lithuania, The Netherlands and Poland say.
The ministers said that Russia had to take advantage of its liquid national wealth fund assets, valued at US $ 55 billion on April 1 by the Russian finance ministry, to finance its war industry, which has become central to the national economy. But finance ministry data show that value has plunged nearly 50 percent, from US$104.7 billion before the war, Bloomberg reported.
Finland’s central bank reported in May that Russia’s spending and output in the military industrial sector has suddenly surpassed other industries since 2022, “increasing economic imbalances and eroding Russia’s long-term growth potential.”
Meanwhile, Moscow has introduced export bans on petroleum and sugar, as well as strict capital controls, to ensure domestic supply and preserve private money.
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All these are features of the Soviet economy, the ministers write.
“History clearly shows that this is not a successful long-term strategy,” the article states.
“Overheating of the economy in the short term, fueled by heavy investments in the war industry and very limited access to technology, will likely block productivity gains and lead to stagnation in the private sector, even inflation more rampant and increasing pressure on Russian households. “
The ministers say this is proof that sanctions – which have targeted Russia’s assets abroad and its ability to import and export goods and materials, including energy products and military components – are working and must be strengthened and expanded.
A Canadian finance ministry official, speaking to Global News on background, pointed to other signs that “Russia’s economy is in trouble,” including rising inflation, which Russia’s central bank said Friday was up from 8.6 percent in June and 7.4 per cent in 2023.
Canada believes sanctions are effective and will “do whatever it takes” to pressure Russia to end its invasion and “make sure Ukraine wins,” a spokesman said. Finance Minister, Chrystia Freeland.
“Those sanctions have cut Russia off financially from much of the global economy and are having a real and lasting impact on the Russian economy,” Katherine Cuplinskas told Global News in an email.
Canada has sanctioned more than 3,000 entities and individuals in Russia, Ukraine, Belarus and Moldova for their support of the Russian invasion, said a spokesperson for Global Affairs Canada.
“Canada will continue to apply economic measures in cooperation with its partners, including the G7,” Charlotte MacLeod said in a statement.
The United States, the United Kingdom and the European Union have also targeted Chinese, Iranian and North Korean entities to tackle alleged sanctions evasion and material support for the war.
US Treasury Secretary Janet Yellen said on Thursday that the threat of US sanctions on Russian financial institutions is hampering its ability to procure the goods needed for its war against Ukraine.
Yellen also said she believes Russia’s revenues are limited by other sanctions and a price cap on Russian oil exports.
Last month the G7 approved a plan that will use future revenues from Russian assets frozen in their countries to support a US$50-billion loan to Ukraine. Canada will contribute $5 billion to the plan, which Russian President Vladimir Putin described as “theft.”
The International Monetary Fund predicted this month that Russia’s GDP will grow by 3.2 percent this year, but will fall to 1.5 percent in 2025.
Russia has managed to keep its economy afloat through stronger trade, energy and security partnerships with countries such as China, India, Brazil and Vietnam, despite pressure on those countries from Ukraine and its western allies to cut ties with Moscow .
But western officials and experts say the continued focus of spending on Russia’s war machine leaves other sectors vulnerable.
Apart from inflation, Russia has entered a spiral of wage growth fueled by generous payments to Ukrainian combat volunteers and defense sector workers. It also suffers from an acute labor shortage in many sectors.
The workforce has turned to using teenagers, older people and even prisoners to fill those gaps, with reports of some being told their labor will allow them to avoid conscription or jail time.
It is estimated that more than a million people have left Russia since the war in Ukraine began, either because troops were partially ordered in September 2022 or young men fleeing the country to avoid conscription.
The central bank’s policy has helped Russia cope with the impact of sanctions, but critics argue that the regulator is hampering economic growth, which has just recovered to a rate of five percent.
Russian lawmakers on Thursday gave preliminary approval to proposed legislation that would allow foreign banks to open branches in Russia, a move the finance ministry said it hoped would ease problems with cross-border settlements.
International settlements have been a problem for Moscow after sanctions blocked the access of major Russian banks to the SWIFT global payments system.
“Institutions are the connecting thread of the economy,” Deputy Finance Minister Alexei Sazanov told lawmakers when introducing the bill, which was passed during its first reading in the State Duma, the lower house of parliament.
“Without settlements, the functioning of the economy is not possible.”
– with files from Reuters
(Except translation, this story has not been edited by achinews staff and is published from a syndicated feed.)
source link https://globalnews.ca/news/10644065/russia-economy-sanctions-ukraine-eu/
