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first half of this year, $100bn more than in the same period a year earlier, says Elina Ribakova, deputy chief economist at IIF. The budget is also in profit, although it is expected to go into deficit later this year.
The West floated a plan to introduce oil price cap to cut Russia off from these super profits, but it has fallen at the first fence as again it appears the idea is impossible to implement due the non-cooperation in the scheme by the nonaligned world.
The sanctions on technology and equipment are by far the most effective with the vast majority of machines and electronics barred from reaching Europe. This will force Russia to go back several generations of equipment and machinery and severely limit its access to modern technology. That will impair productivity growth and dooms the country to slowly fall behind the rest of the world, unless it can source equivalent technology from its partners in the east, which is currently unavailable.
On the macroeconomic front things are going well too. The CBR put through an emergency rate hike taking interest rates to 20%, but that, and strict capital controls, successfully stabilised the economy and since then the CBR has cut rates four times, bring interest back to 8% - below the pre-war levels. Inflation peaked in April and Russia is now the only country in Europe where inflation is falling, albeit still at a very high level above 15% as of the end of July.
The politics of getting the West to remove or ease sanction has started in earnest. At the end of July the Kremlin singed off on a deal to allow Ukraine to restart its grain exports in exchange for easing sanctions on its own exports.
In a similar vein, Russia restarted flows of gas through Nord Stream 1 pipeline in July after it was feared this would not happen, but it reduced the flows for a second time from the already low 40% of capacity to 20% in order to maintain the pressure on Europe. Gazprom is asking for sanctions on all its imports of equipment to be lifted in exchange for expanding flows again.
The impact of the sanctions on most Russians are minimal and life in the cities continues as normal. While many imported foreign brands have disappeared entirely there are no shortages and more than half of Russia’s business report they have found new suppliers but only about 5% say they cannot find any alternatives to products they previously imported from the west. Although the CBR is expecting real incomes to fall by about 5% this year, the soaring value of the ruble means that in dollar terms wages slumped to $550 at the start
7 RUSSIA Country Report October 2020 www.intellinews.com