68 Finance & economics TheEconomistApril2nd 2022
Russia’seconomyWounded bear
I
nresponsetoRussia’sinvasionofUk
raine, the West launched an economic
war. America banned the sale of a wide
range of goods to Russia; big companies
pulled out by the dozen; and a number of
countries together froze 60% of the central
bank’s international reserves. The idea was
to send Russia’s economy into free fall,
punishing President Vladimir Putin for his
aggression. In the week after the invasion
the rouble fell by more than a third against
the dollar, and the share prices of many
Russian companies collapsed.
Is the West’s strategy still going to plan?
The chaos in Russian markets seems to
have subsided. Since its low in early March
the rouble has jumped, and is now ap
proaching its prewar level. The main
benchmark of Russian stocks plunged by a
third, but has since stabilised. The govern
ment and most firms are keeping up with
their payments on foreigncurrency
bonds. A run on banks that saw nearly 3trn
roubles ($31bn) withdrawn came to an end,
with Russians returning much of the cash
to their accounts.
A battery of policies has helped stabil
ise the markets. Some are orthodox. The
central bank has raised interest rates from
9.5% to 20%, encouraging people to hold
interestbearing Russian assets. Other
policies are less conventional. The govern
ment has decreed that exporters must con
vert 80% of their foreignexchange pro
ceeds into roubles. Trading on the Moscow
stock exchange has become, to use the cen
tral bank’s euphemism, “negotiated”.
Shortselling is banned, and nonresidents
cannot offload stocks until April 1st.
The real economy, though, is in some
ways the mirror image of the financial one:
healthier than it seems at first glance. A
weekly measure of consumer prices shows
that they have risen by more than 5% since
the beginning of March alone. Many for
eign firms have pulled out, cutting the sup
ply of goods, while a weaker currency and
sanctions have made imports more expen
sive. But not everything is surging in price.
Vodka, largely produced domestically,
costs only a bit more than it did before the
war. Petrol costs about the same. And
though it is early days, there is little evi
dence yet of a big hit to economic activity.
According to an estimate based on in
ternetsearch data and produced by the
oecd, a richcountry thinktank, Russia’s
gdp in the week to March 26th was about5% higher than the year before. Other “real
time” data gathered by The Economist, such
as electricity consumption and railway
loadings of goods, are holding up. A spend
ing tracker produced by Sberbank, Russia’s
largest lender, is slightly up year on year.
Part of this reflects people stockpiling
goods before prices rise: spending on
home appliances is especially strong. But
spending on services has fallen only a bit,
and remains far healthier than it was dur
ing much of the pandemic.
Russia seems sure to enter a recession
this year. But whether it ends up faring as
badly as most economists predict—the
wonks are pencilling in a gdp decline of 10
15%—depends on three factors. The first is
whether ordinary Russians start worrying
about the economy as the war drags on,
and reduce spending—as happened in
2014, when Russia invaded Crimea. The
second is whether production eventually
grinds to a halt as sanctions block firms’
access to imports from the West. Russia’s
aviation sector looks particularly vulner
able, as does the car industry. Yet many big
businesses that started during Soviet times
are used to operating without imports. If
any economy could come close to coping
with being cut off from the world, it would
be Russia’s. The third and most important factor re
lates to Russia’s fossilfuel exports. Despite
the many sanctions imposed on it, Russia
is still selling about $10bnworth of oil a
month to foreign buyers, equivalent to a
quarter of its prewar exports; revenues
from the sale of natural gas and other pe
troleum products are still flowing in, too.
This provides a valuable source of foreign
currency with which it can buy some con
sumer goods and parts from neutral or
friendly countries.Unless that changes,
the Russian economymaycontinue to defy
the worst predictions.nUnder unprecedented sanctions, how
is the economy holding up?Sanction reaction
RussiaSources:RefinitivDatastream;NicolasWoloszko,OECD *RTS index1801501209060202 2022OctNov Dec Jan Feb MarRoublesper$
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Octoberst202=00
Trading
suspended15
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5
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-5
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2020 2221Real-time GDP estimate
% change on a year earlierPaying the price of warEmergingeconomiesMenu costs
T
he sri lankaneconomy was in danger
well before Russian tanks began rolling
into Ukraine. Burdened by foreign debts
and squeezed by the effects of the pandem
ic on its tourist receipts, Sri Lanka’s gov
ernment dithered over approaching the
imffor help as the year began. Now a de
valuation of the currency and the impact of
the war on commodity markets is sending
consumer prices soaring. Troops have
been deployed to calm the crowds queuing
for fuel, and a debt default may be un
avoidable. As the prices of everything from
oil and gas to corn and wheat surge, other
countries may fear a similar fate.
Food makes up a modest share of
households’ budgets in the rich world, but
accounts for more than 20% of consumer
spending across most of the emerging
world and about 40% in subSaharan Afri
ca. Prices had already risen substantially
over the past couple of years, owing to in
terruptions to production and extreme
weather. Global food prices, in real terms,WASHINGTON, DC
Surging food prices take a toll on poor
economies