The provided text discusses the economic challenges facing Russia amidst its war in Ukraine. Here’s a breakdown of the key points:
Economic Downturn and Central Bank Actions:
Car Sales Collapse: Car sales in Russia dropped by 30% in June, indicating a notable downturn in the civilian economy.
Interest Rate Cuts: The Central Bank of Russia reduced its base interest rate by 2 percentage points, following a 1 percentage point cut the previous month. This decision is seen as prioritizing inflation over avoiding an economic recession.
Expert Analysis: alex Kokcharov, a Bloomberg Economics Geo-Economic Analyst, points to a combination of factors contributing to economic difficulties: the war, Western sanctions, labor shortages, oil prices, an expensive currency, and high interest rates.
Focus on Military Spending and Civilian economy Neglect:
Putin’s priorities: Putin is described as being almost entirely focused on military objectives, leading to a growing risk of collapse in the civilian sector of the economy.
Limited Support for Civilian Sectors: While Russia has found support for oil and gas exports to China,India,and some European countries,this hasn’t been enough to offset problems in other sectors.
Specific Sectoral Problems:
Coal Industry Crisis: The Russian coal industry is facing a major crisis, having lost markets and suppliers of essential equipment, and being unable to access Western financing for modernization.
Steel Industry Struggles: The military-industrial complex’s inability to absorb enough steel,coupled with export problems and a cooling real estate market (a significant driver of steel demand),has led to a decline in Russian metallurgy.
Financial Sector Concerns:
Bank Assistance: Leaders of major Russian banks are privately discussing the need for state assistance due to a potential rise in problem loans. Loan Portfolio Quality: Insiders and documents suggest that the actual “quality” of loan portfolios in Russian banks is worse than officially reported.
State Orders and Defense as Drivers:
dominance of state Orders: Sofia Donets, Chief Economist at T-Investments, notes that only a narrow group of leading industries with high growth rates are linked to state orders and defense.
Civilian Sector Decline: Most civilian industries in Russia are projected to reduce production by 2025.
Government Practices and Business anxiety:
Confiscation of Private Assets: To fund the military budget, the Russian government is resorting to confiscating private assets, with the total cost of confiscated assets tripling in the past year. Nationalization Fears: This practice is causing anxiety among russian businesses, who fear a wave of nationalizations, a concern that the Kremlin appears unwilling to address.
Putin’s Historical Ambitions:
Indifference to Civilian Economy: Alex Kokcharov suggests that putin is indifferent to the decline in sectors like coal mining, logging, or retail sales, as his focus is on military goals and a desire to emulate historical figures like peter I or Catherine II.
Long-Term Outlook:
Technological Lag: While Russia’s military economy might appear strong in the short term, the long-term outlook is bleak. Without Western technology, Russia is “doomed to a gradual technological lag,” notably in the military field.
China’s Stance: The article also briefly mentions that China does not want Russia to win the war in Ukraine, as this would strengthen Moscow’s position.
In essence, the text paints a picture of an economy increasingly geared towards military objectives, at the expense of its civilian sectors, and facing significant long-term challenges due to sanctions and a lack of access to crucial technologies.
