Page 7 - Russia OUTLOOK 2023

But Russians in general seem to accept the increased hardship, as they have
mostly bought into Russian President Vladimir Putin’s line that Russia is
fighting a proxy war and is under attack by Nato – something that is not entirely
untrue.

On top of the strength of Putin’s Fiscal Fortress that has proved to be far more
effective at shielding Russia from sanctions than hoped, the effect of the partial
sanctions and self-sanctioning has been to drive up commodity prices to the
point where they far outweigh the reduction of volumes of commodities
exported.

And instead of collapsing the economy, Russia is rolling in money.
Russia should end 2022 with a current account surplus of some $250bn –
more than twice the $120bn it ended 2021 with, and that was already an
all-time high record.

The effect of the sanctions in the short term has been limited – and
actually in many ways counterproductive – but the long-term effects will
be devastating.

Cut off from technology, sophisticated equipment and many of the inputs
Russia relies on – Russia imports all its seed potatoes, hatching eggs, print ink
and much of its quality paper, for example – its long-term growth potential has
been reduced from the already low 2% to about 1% now. With global growth
regularly over 4% or more, Russia’s economy is destined to stagnate and
slowly fall behind that of the rest of the world in the coming decade.

Russia’s economic health will almost certainly worsen in 2023. The
federal budget is expected to end 2022 with about a 2% of GDP deficit, but
was still in surplus in November, but only thanks to a special RUB450 billion
($7.1 billion) tax payment by Gazprom.

The oil embargo and related oil price cap scheme that was implemented on
December 5 will also prove to be largely ineffective but will reduce Russian oil
exports and/or production by about 1mn barrels per day (bpd), say analysts,
bring the current account surplus down to around $100 billion in 2023 and
increase the 2023 budget deficit to 3%, up from the 2% that has been pencilled
in by the Ministry of Finance (MinFin). While all these things are painful, none
of them are devastating and both the Kremlin and the people are willing to take
this pain for the moment.

Russia’s economy is likely to limp on as business tries to remake itself with
relations in the Global South. While Russia will be cut off from the latest
technology it is now trying to marry itself to the faster growing part of the global
economy that will somewhat mitigate the pain of leaving the advanced
economies. Moreover, Russia has a lot to offer the emerging world as it

7 Russia OUTLOOK 2022 www.intellinews.com