IN EARLY APRIL we highlighted preliminary evidence that the Russian economy was defying predictions of collapse, even as Western countries introduced unprecedented sanctions. Recent data further support this view. Aided by capital controls and high interest rates, the ruble is now as valuable as it was before Russia invaded Ukraine in late February (see top chart). Russia appears to be keeping pace with payments of its foreign currency obligations.
The real economy is also surprisingly resilient. To be sure, Russian consumer prices have risen more than 10% since the start of the year, as the initial depreciation of the ruble made imports more expensive and many Western companies pulled out, reducing supply. The number of companies in arrears with their salaries seems to be increasing.
But “real-time” measures of Russian economic activity largely hold. Total electricity consumption decreased only slightly. After a lull in March, Russians appear to be spending fairly freely in cafes, bars and restaurants, according to an expense tracker run by Sberbank, Russia’s largest bank. On April 29, the central bank lowered its key rate from 17% to 14%, a sign that the financial panic that began in February has eased slightly. The Russian economy is undoubtedly contracting (see bottom chart), but some economists’ predictions of a GDP declines of up to 15% this year are starting to look pessimistic.
Even before the invasion, Russia was a fairly closed economy, limiting the impact of sanctions. But the main reason for the economy’s resilience is related to fossil fuels. Since the invasion, Russia has exported at least $65 billion worth of fossil fuels via shipments and pipelines, suggests the Center for Energy and Clean Air Research, a Finnish think tank. In the first quarter of 2022, government revenues from hydrocarbons increased by more than 80% year-on-year. On May 4, the European Commission proposed an import ban on all Russian oil that would come into full effect by the end of the year. Until then, expect the Russian economy to continue to spin in circles.
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