Russia’s economy begins to crack under the weight of sanctions

Risk of default, collapse of the automotive sector, inflation … After weeks of increasingly harsh sanctions, the Russian economy is starting to crack, according to data published on Wednesday.

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If the cascading announcements of withdrawals of international groups from Russia had made noise, they had not yet translated into serious repercussions on real economic activity.

But several weeks after salvoes of sanctions going crescendo since the beginning of the Russian offensive in Ukraine, the effects are now beginning to be felt.


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The Russian Ministry of Finance has thus announced that it has settled in rubles a debt of nearly 650 million dollars following the refusal of a foreign bank to make payment in dollars, which exposes it to a risk of default in after a 30-day grace period beginning April 4.

For several weeks, Russia managed to avert the danger of a default, with the US Treasury allowing the use of foreign currencies held by Moscow abroad to settle foreign debts. But he tightened the sanctions this week, no longer accepting dollars held by Moscow in American banks.


The Russian ministry also warned creditors of “hostile countries” on Wednesday: the money will be reimbursed to them in rubles deposited in a Russian account, and they will only be able to convert these rubles on the condition that the funds from Russia to abroad are unblocked.

“There is no basis for a real default,” for his part swept away Kremlin spokesman Dmitry Peskov, questioned during a press briefing on Wednesday, affirming that “Russia has all the resources necessary to honor its debts.

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“Putin impoverishes Russia”

“It is difficult for Russia to avoid a sovereign default,” nevertheless commented Timothy Ash, analyst at Blue Bay Asset. “A flaw is a flaw. The markets will judge it that way. The investors have not been paid. They will remember it”.

“A default may not immediately collapse the Russian markets and economy, but will have devastating consequences in the longer term”, adds this economist, who foresees “an impact on investment, growth, the level of life” among others.

“Putin is impoverishing Russia for years,” he concludes.

Another shock figure of the day, sales of new cars collapsed by 62.9% in March over one year, symbol of an entire sector at bay, the West having notably banned exports to Russia of spare parts.

Many producers have also announced that they will stop selling components or cars to Russia, like Audi, Honda, Jaguar or Porsche. Others have announced the cessation of production, such as Renault, BMW, Ford, Hyundai, Mercedes, Volkswagen or Volvo.

The factories of Avtovaz (Renault-Nissan group), the leading car producer in Russia, employing tens of thousands of people, are almost at a standstill due to a shortage of imported components.

According to Avtostat data cited by Kommersant, new car prices rose an average of 40% in March, and up to 60% for high-end cars, the supply of which is limited by logistical problems as well. than by penalties.

March inflation figures are due Wednesday evening and are expected to break records.


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Alexeï Vedev, associate researcher at the Gaidar Institute of Ranepa University in Moscow, estimates that it will be around 20% annually, after having exceeded 9% in February over one year.

“It was a month of panic among consumers”, who rushed to products which they foresee the disappearance, he believes. “As the situation stabilizes, the objective processes at work will become clearer.”

And according to Andrei Yakovlev, of the Moscow Higher School of Economics, the real crisis will not reach the real economy until this summer or autumn: “in May, a large number of companies are likely to stop” for lack of of imported components, particularly in the automotive industry which employs hundreds of thousands of people.

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