​Sanctions effect: Russia's economy chasing its rivals

The 'Russia system' seems to have held up in the face of Western restrictions for its invasion of Ukraine. However, problems are expected in the long run. It will be difficult for the Russians to compensate for lost imports. A drop in the population's standard of living is expected. The Russian Bear behind even the emerging Asian countries.

Moscow (AsiaNews) - Mikhail Zadornov, president of the Otkrytye commercial bank, one of Russia's most important, commented on the economic consequences of western sanctions in an interview with Rbk (the authoritative RosBisnesConsulting agency). He warned that "our economy will grow much more slowly than that of our main competitors."

At the end of 2022, Russia's main economic indicators remain largely positive, and the official version repeatedly stated by President Putin himself reads that "sanctions have failed, our economy is holding up and will be increasingly solid'. Zadornov notes that 'it is necessary to look at this situation by distinguishing the short-term prospects from the medium- and long-term ones," although indeed the situation is much better than expected after the 'February shock', with GDP falling by only 3%.

Oil export earnings, thanks to price increases, rose by 2%, and this enabled the 'strong rouble' to be sustained, even without special interventions by the Central Bank. A stable currency has also made it possible to combat rising inflation, but "oil and gas production and sales remain the crucial factor for us, and we cannot predict how next year will go", after the European embargo came into force on 5 December.

As Zadornov explains, it is unclear not only to whom the oil will be sold, but "who will transport it and ensure, if it is possible to reverse the export, from Europe and other hostile countries to Asian markets". For now, the forecast is for a drop from 525 million tonnes to 475 million tonnes, which will be greatly felt throughout the Russian economy.

A 'long-lasting' factor concerns the production activity of many companies, which currently develops 'by inertia, thanks to the reserves of materials and technologies', which are bound to run out soon enough, and no new supplies are expected. This will lead to a 'gradual adaptation to the new conditions, which will initially have a very significant braking effect' due to the absence of critical components in many sectors. "China will be able to give us some replacements, but it too will need time and technological upgrades, not to mention logistical problems."

Russia has very limited possibilities in the renewal of technologies and it is observed that 'most companies put projects on hold, putting them off for one to two years, in the hope that something will happen, and this is somewhat the case in all production sectors'. Especially since the preparation of new technological materials in turn requires the machinery to produce them, and this too is increasingly lacking. In any case, "it is unthinkable that a country whose economy accounts for less than 2% of the world's GDP, such as Russia, can provide itself with all the necessary components for the production system."

Therefore, Zadornov concludes, "the fact that there hasn't yet been an economic collapse should not create illusions; even if we manage to hold out, we will still be very constrained with respect to the needs of the international markets, and also for Russia's domestic market". The Russian economy could start growing again at the end of 2023, but already in the period before the pandemic, from 2012 to 2019, economic growth was twice as low as that of the G7 countries, 1% compared to 2%, not to mention China, India and other rapidly developing economies, and in the next five years it will probably be five times slower than the other major world economies.

The economic lag is also expected to translate into a decline in the living standards and social conditions of the population. As Zadornov warns, "we will not have to compare ourselves so much with Europe or America, or even China, but rather with Indonesia, Vietnam and the countries of the Middle East, which are trying to adapt to the new conditions of the world economy much faster than we are."