‘Slower burn.’ Russia dodges economic collapse but the decline has started – CNN

by | Aug 28, 2022 | Financial

“I’m driving through Moscow and the same traffic jams are there as before,” says Andrey Nechaev, who was Russia’s economy minister in the early 1990s. The readiness of China and India to snap up cheap Russian oil has helped, but Nechaev and other analysts say Russia’s economy has started to decline and is likely facing a prolonged period of stagnation as a consequence of Western sanctions. On the surface, not much has changed, bar a few empty storefronts that once housed Western brands that have fled the country in their hundreds. McDonalds (MCD) is now called “Vkusno i tochka”, or “Tasty, and that’s it” and Starbucks (SBUX) cafes are now gradually reopening under the barely disguised brand Stars Coffee. The exodus of Western businesses, and wave after wave of punishing Western sanctions targeting Russia’s vital energy exports and its financial system, are having an impact, but not in the way many had expected. Nechaev, who presided over some of Russia’s most turbulent economic times and helped steer its transition to a market economy, credits some of this to the central bank.The ruble did crash to a record low to the US dollar earlier this year in the wake of the invasion as the West froze about half of Russia’s $600 billion foreign currency reserves. But it’s bounced back since to its strongest level against the US dollar since 2018. (Remember President Joe Biden’s threat of reducing it to “rubble”?) That’s largely the result of aggressive capital controls and rate hikes back in the spring, much of which have now been reversed. Interest rates are now lower than before the war, and the central bank says inflation, which peaked at almost 18% in April, is slowing and will be between 12% and 15% for the full year.The central bank has also revised up its GDP forecast for the year, and now expects it to shrink by 4% to 6%. In April, the forecast was for an 8% to 10% contraction. The International Monetary Fund also now predicts a 6% contraction. It helped that the Kremlin had eight years to prepare, spurred by the sanctions the West imposed after Moscow annexed Crimea in 2014.”The exit of Mastercard, Visa, it barely had an impact on domestic payments because the central bank had its ow …

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