New sanctions start to bite in Russia as Moscow admits deficit impact

Russian President Vladimir Putin speaks at a press conference after the State Council meeting on youth policy in Moscow, Russia, December 22, 2022.

Sergey Guneev Sputnik | Reuters

The latest round of Western sanctions against Russia over its invasion of Ukraine has begun to affect the country’s economy.

Russian Finance Minister Anton Siluanov is said to have told reporters on Tuesday that the oil price imposed by the G-7 (Group of Seven) major economies, as well as the European Union and Australia, is squeezing Russia’s exports and could lead to a budget deficit. Moscow is rising. than the 2% expected next year.

Falling prices for Russian crude and refined oil could force the Kremlin to cut output between 5% and 7% next year, the RIA news agency quoted Deputy Prime Minister Alexander Novak as saying on Friday. However, Moscow must cover the shortfall by providing mortgages and a rainy day fund, officials said.

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The 27 EU countries also agreed in June to ban purchases of Russian oil from 5 December.

“It’s still too early to assess the impact of G7 oil prices and the EU ban on Russian exports that came into effect on December 5, but early signs suggest that Russia’s economy is slowing,” said Nicholas Farr. , European economist at Capital Economics.

“The latest data shows that Russian oil exports have fallen since the sanctions were imposed and the spread between Brent crude oil prices and Urals oil prices widened to a six-month high. [last] week.”

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Farr noted that this would add to the impact of Russia’s strong currency on global inflation in recent months. Global Brent crude fell from a peak of around $98 a barrel in October to around $77 earlier this month, returning to around $84.50/bbl by Tuesday morning in Europe.

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Meanwhile, the Russian ruble fell by nearly 10% against the dollar last week, making it the worst performing EM currency after defying expectations for years.

Farr said that the main consequence of the weakening of the ruble will be a rise in inflation due to higher commodity prices. The Bank of Russia (CBR) ended interest rate cuts in October and before revising its monetary policy in December, warned that inflationary risks were “growing” in the economy.

If the ruble continues to fall in 2023, Farr said the CBR could be forced to look at inflation to keep pace with inflation, and Capital Economics believes the end of Russia’s resilience to Western sanctions will be a major issue. 2023.

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“Russia has benefited greatly from the increase in its trade from high prices in 2022, but …

“We think that the Russian economy will be disrupted again in 2023. In the meantime, the decline in energy costs means that the Russian paper will be difficult.”

Being the most important pillar of the Russian economy this year, Capital Economics expects that the current money supply will “decrease significantly in the coming months.”

“There is a significant risk that significant external restructuring will be required from 2024, which will result in sluggish growth,” Farr added.

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