Page 39 - bneMagazine March 2023 oil discount

bne March 2023 One Year On I Special focus I 39
two new rounds of oil embargos and
the oil price cap schemes that were introduced on December 5 and February 5, targeting crude and oil product exports respectively. While the EBRD kept its forecast for a 3% contraction in 2023, the IMF’s prediction that Russia’s economy would grow by 0.3% this year, considered to be a wildly optimistic outlier, now looks a lot more likely.
The 2.1% result is surprising on several levels. First, it is way below the 15% contraction most economists predicted a year ago at the start of the war, when the “massive package” of CBR sanctions and SWIFT sanctions were imposed only days after Russia’s invasion of Ukraine. Those both came out left field and were expected to be devastating.
It is also a full percentage point less than the 3.1% contraction in 2020
that was a result of the lockdown of
the economy during the coronavirus pandemic. It was also much smaller than the falls in GDP during the financial crises of 1998 and 2009. Indeed, of the last five really big crises in Russia over the last three decades, as detailed by bne IntelliNews in a feature on the history of crises, the war-induced crisis is by far the most mild Russia has experienced.
The Ministry of Economic Development has begun developing scenario conditions for the forecast of Russia's socio-economic development until 2026. A number of indicators of the current forecast (prepared in September 2022) will be improved, according to sources inside the ministry. The revised document will be submitted to the government in April. According to Macro Advisory, the current forecasts include:
• The economy will contract by 0.8% in 2023 and grow by 2.6% in 2024
• Inflation at the end of this year
is predicted at 5.5%, and the government expects it to return to the target of 4% in 2024
• Investments in fixed assets will decrease by 1% in 2023
• Real disposable income will increase by 1.6%
• The main factors for economic recovery will be consumer demand and high investment activity.
“When preparing the document, we will take into account the positive results of 2022 achieved through the implementation of the Plan of Priority Actions in the Conditions of Sanctions,” the Ministry of Economic Development said in February.
But unlike all the other big crises in 1991, 1998, 2009, 2014 and 2020, in each of those cases Russia remained an open market economy that still produced raw materials and was able to bounce back. In this crisis Russia has become
a closed, non-market economy with sanctions on its major money earners, and the chances of it bouncing back
are very low; even CBR Governor Elvia Nabiullina estimates that Russia’s long-term growth potential for the foreseeable future is a mere 1.5%. Russia will very likely stagnate for the next decade.
However, in a word of caution, the government has been restricting much of its economic reporting, which previously has been very good, and some analysts worry the picture is
is wasted. And there is a question of messaging, as the government needs to send a good message. And we might get a Chinesisation of reporting. In the past the reporting was good, but now RosStat is restricting what it reports, so it is not as clear,” says Elina Ribakova, deputy chief economist at the Institute of International Finance (IIF), during
a bne IntelliNews podcast on the impact of sanctions.
Down but not out
“The contraction of 2.1% in 2022 was smaller than expected, indicating
that the country's economy may
have stabilised after the initial hit
from sanctions in Q2,” Liam Peach,
an emerging market economist with Capital Economics, said in a note. “This trend is supported by the expansion
of the economy in Q4. However, the economy's momentum remains weak, and with headwinds to activity building, it may take until late this year for Russia to embark on a sustained recovery.”
The expenditure breakdown showed that the contraction was driven by a drop in inventories as well as household consumption, which declined by just 1.8%, according to Capital Economics.
“This is surprising given that the monthly retail sales data showed a fall of around 7% last year. Household
“Who are the winners? Any factory that is connected to the military or had to retool to supply the military. But I don’t believe in the second-quarter big investment figures”
being distorted by the government on purpose. Large categories of data on things like trade and the bank sector performance have simply disappeared.
“Who are the winners? Any factory that that is connected to the military or had to retool to supply the military. But I don’t believe in the second-quarter big investment figures. In the best of years there is never great investment and there is a lot of leakage, as a lot of “investment”
spending weakened due to a sharp rise in inflation, a tightening in credit conditions, and a preference for higher savings in the face of greater uncertainty,” said Peach.
Inflation has also been doing well. In the first week of the war the CBR put though an emergency 100bp hike that immediately stopped a meltdown of the ruble that had gone into free fall. That in turn prevented a devaluation spike
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