Home Business The Russian economy, a fortress with fragile foundations

The Russian economy, a fortress with fragile foundations


Saint-Petersburg, its sleepless nights and its limousines with tinted windows… Every year in June, for twenty-five years, the Economic Forum has been the major business meeting place in Russia, with the air of a little Davos. The entire economic elite rushes there, between foreign investors and ministers. But this year, the big Western companies will be absent, while the only foreign guests will come from Venezuela or Kazakhstan…

Despite everything, this forum, which begins on June 15, will act as if nothing had happened. As proof, he chose to take as his theme: “New opportunities in a new world”. The official discourse consists in effect in saying that Russia can do without the West, that it can redirect its exports and produce itself what it needs.

Energy earns a billion a day

The reality is quite different. Certainly, Russia was able to overcome the first shock caused by the sanctions. But the economy is expected to experience major difficulties in the medium term. “At the moment, the effect of the sanctions on daily life is not visible for most households, but the problems should accumulate from the fall,” Judge Ivan Timofeev, ex-director of the Russian Council for International Affairs, a think tank close to power.

Russia was able to cushion the first shock thanks to oil and gas revenues. “The latter ensures a very large flow of foreign currency to Russia”, notes Julien Vercueil, economist and professor at the National Institute of Oriental Languages ​​and Civilizations (Inalco). During the hundred days following the start of the conflict, the country exported 93 billion euros worth of energy products, or nearly one billion a day. Thanks to these inflows, Russia was able to stem the fall of the ruble and avoid the collapse of the banking sector.

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Inflation spurt

But the hardest part is yet to come: “Living conditions are deteriorating. Inflation is expected to reach almost 20% year on year, flagship companies that had symbolized Russia’s integration into the world economy are closing, and the incomes of the majority of the population could fall by as much as 10% during the year 2022”, analyzes Julien Vercueil.

In the medium term, the sanctions should highlight what is the main weakness of the Russian economy: the lack of investment to master essential technologies. For lack of an automotive supplier, Russia has, for example, just authorized the production of vehicles that will no longer have airbags or braking assistance, a leap of twenty years back. The country’s civilian planes could soon find themselves grounded for lack of spare parts. “Aeronautics was one of the pillars of Soviet industry, but today production has become globalized and is highly dependent on parts from the United States or Europe,” notes Grzegorz Sielewicz, Head of Economic Research for Central and Eastern Europe at Coface.

Parallel circuits

And the same goes for electronic components. “Russia produces a lot of raw materials but exports them to other countries which process them into semiconductors,” adds Grzegorz Sielewicz.

However, most major producers such as Samsung, Intel or TSMC have banned the import of their chips into Russia. To supply itself, Russia intends to use parallel circuits, in violation of international rules. It has already authorized the purchase by its companies of semiconductors without the agreement of the patent holders. And it will go through Chinese, Turkish or Indian resellers. This mechanism will make access to these essential technologies more expensive and more difficult.

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Fifteen years of growth wiped out

The International Institute of Finance, which brings together banks and investment funds from around the world, predicts that the Russian economy will contract by 15% in 2022, that consumption will fall by 18% and private investment by 25%. “Current developments are set to wipe out the last fifteen years of economic gains for Russia,” he writes.

Isolation from Western countries will force Russia to turn more to China and India. Particularly symbolic fact: India has become in a few weeks, since February 24, the second buyer of Russian oil, doubling Germany. Indians get a 30% discount on the price, as customers no longer jostle each other. The first buyer country was already China. “This crisis is reshaping Russia’s relationship with the rest of the worldconfirms Ivan Timofeev. It will place Russia in a financial space that will be more China-centric. »


Gazprom cuts gas deliveries through Nord Stream pipeline by 40%

The Russian giant Gazprom has announced a drop of more than 40% its daily gas delivery capacity to Germany via the Nord Stream gas pipeline. The company explains that compressors which were to be supplied by the German group Siemens have not been supplied, which prevents it from filling the pipeline. However, the German government has indicated that the security of supplies is not threatened, while Siemens has said that it verifies these allegations. The Nord Stream 1 gas pipeline delivers Russian gas to Germany via the Baltic Sea. It was commissioned in 2012.

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