Page 8 - RusRPTMar23

customers using its growing “ghost fleet” of tankers.
The economy was also held up by a surge in both public and private investment as companies adjusted their production to take account of the new sanction’s realities. As presumably a lot of this investment went into military production it is not clear what effect this will have on both the amount of growth and the quality of growth. The topic is being hotly debated and some are arguing that the investment produces superficial growth, but is actually hollowing out the economy as it does little to improve demand and consumption.
Much of this investment was driven by companies and regional and federal authorities accelerating the timelines for existing investment plans to cushion the blow from sanctions and offering targeted relief for businesses in the form of stays on taxation and direct financial support, effectively masking the problem.
Some was also driven by import substitution and pressures facing import- dependent firms to replace parts, goods, and services that were now more difficult to access.
The base scenario is that the war will drag on all year. The two sides are too far apart in their negotiating position and talks don’t seem possible. Progress will be determined on the battlefield and for Ukraine everything depends on securing more weapons and materiel from the West.
But here things are not looking good. Despite promising over 400 main battle tanks (MBTs) only two have arrived and several countries have reneged on their promises so a total of 380 are now pledged. That includes 31 from the US but they recently said that their Abrams wont arrive for one and half or two years. Likewise, the West very quickly quashed Kyiv’s calls for fighter jets. And the lack of ammo is becoming a growing problem: here too there have been calls for investment into bigger production, but little has been done.
There is no danger, under any plausible scenario, of an economic collapse or financial crisis affecting Russia, according to Macro Advisory. The real impact of the accumulation of 13,000 separate sanctions will be a steady erosion of economic activity and efficiency. There will also be a steady decline in real household incomes (e.g. a growth in part-time or reduced hours work) and in the lifestyles that Russian people (especially those in the cities) have enjoyed since 2000. The gap in technology with the rest of the world will widen and become more damaging, but over several years rather than several months. How far that degradation will go and what will be the impact on the country will depend on volatile and unpredictable geopolitics.
Retail sales, a good proxy for consumption trends, has contracted sharply. The volume of November retail sales was down by 8% y/y. High inflation has eroded the purchasing power of Russian consumers, with consumer price
8 RUSSIA Country Report March 2023 www.intellinews.com