Economy

Russia's Economy on the Brink of Crisis After Ukraine Attack – The Moscow Times

Published

3 years ago

February 24, 2022

Russia’s economy faces being plunged into a fresh economic crisis following Moscow’s move to start military action in Ukraine.

The Russian ruble fell 10% to its lowest ever level against the U.S. dollar and euro Thursday morning within minutes of Russian President Vladimir Putin’s announcement of a “special operation.”

Tough economic sanctions from the West are certain to follow, with leaders in the U.S. and Europe staging emergency meetings Thursday to decide how to respond to what Joe Biden has called Moscow’s “flagrant aggression.”

Despite months of tensions and a significant troop buildup by Russian forces, the prospect of full-scale war was being largely dismissed in Moscow until earlier this week when Putin delivered an angry address to the nation undermining Ukraine’s sovereignty and peddling unjustified claims about a “genocide” in Ukraine.

Moscow claims its economy is well protected from any Western sanctions and the economic fallout that will follow.

“It will be painful, but we’ve got through it before,” an economics correspondent said in a news update on state TV on Wednesday, after the first tranche of sanctions were put in place.

The Russian government says it has built up significant government reserves — more than $630 billion — which it believes will protect the economy from the worst of any economic crisis.

The government runs an annual surplus — meaning it does not need to borrow cash on either the domestic or international markets — and government debt is below 20% of the country’s GDP.

Russia has also boasted about the success of its import substitution drive since it annexed Crimea in 2014, pointing mainly to the development of its agricultural industry thanks to a ban on food imports from the EU.

State-owned Sberbank, by far the country’s largest and most important financial institution, issued a bullish statement on Thursday morning, claiming it was “ready for any development of the situation” and had “worked through scenarios to guarantee the protection of our resources, assets and customer interests.”

This balance sheet — dubbed “fortress Russia” — is regularly pointed to as a source of protection.

But analysts are not convinced it would be enough in the face of a likely unprecedented Western response, pointing to both damaging short-term and long-term consequences.

“Given the severity of the Russian actions, we expect Western policymakers to go beyond their worst-case scenario plans, which puts Russia’s expulsion from the SWIFT financial messaging system in play. The Nord Stream 2 pipeline will be sidelined indefinitely,” said Eurasia Group’s Henry Rome.

Cut off from global economy

Several large state-owned banks are likely to be sanctioned, effectively cutting them off from the global economy. Washington and Brussels have also previously highlighted the possibility of blocking technology exports to Russia — a move that would inflict serious damage on the country’s state-owned and private businesses which remain heavily reliant on Western hardware and software to power their operations.

Despite Moscow’s high-profile de-dollarization drive in recent years — in anticipation of possible blocks on transacting in the currency — more than half of Russia’s exports are still priced in dollars, according to statistics cited by the Bank of Finland’s Institute for Economies in Transition (BOFIT). Another 30% are denominated in euros, as Russia’s economic partners — largely oil and gas buyers — have shunned the idea of switching to the Russian currency.

That leaves the Russian economy still heavily exposed to Western sanctions that target its ability to deal in the global economy.

At home, a crashing ruble will put even more pressure on an already struggling economy. Inflation is running at its highest level in six years of 8.7% and household finances are in a worse shape than a decade ago. A recent survey by a state-owned pollster found almost two-thirds of Russian families said they have no savings.

The ruble’s devaluation will only accentuate the living standards crisis — pushing prices up, possibly dramatically. According to one study, imported goods account for some 75% of the products and ingredients that go into making everyday products and food that are sold in Russia.

That dynamic will force the Central Bank into a familiar dilemma — bringing down inflation while not tanking the wider economy. Analysts expect it will prioritize the former, as in 2014, when the Russian economy faced a hard economic crisis following the annexation of Crimea and crash in global oil prices.

The regulator intervened Thursday morning to try to prop up the flagging currency and boost liquidity in the banking sector.

Interest rates

Interest rates are currently running at 9.5% and were already expected to rise to 11% or higher in the coming weeks. Higher borrowing costs will inevitably hurt Russian businesses and consumers, many of which are heavily indebted following a decade of economic stagnation.

Scope Ratings’ analyst Levon Kameryan said the escalation of the conflict could also result in capital flight, as Russians seek to protect their savings and assets from the looming economic crisis.

The key unknown in terms of the scope of an economic hit is energy flows, Kameryan added. Almost two-thirds of Russia’s natural gas exports flow to Europe and around half of its global oil sales — huge sources of revenue that have bankrolled Moscow’s “fortress Russia” sanctions-proofing in recent years.

Germany said Wednesday it had enough energy in storage to get through the winter should Russian flows be disrupted. There is little talk for now of Europe deciding to stop buying Russian energy, but there are fears Russia could turn off the taps or try to squeeze Europe in response to any sanctions package — especially as Putin has repeatedly shown that the domestic economy comes second to foreign policy in terms of priorities.

Russia’s energy exports to Europe are worth 90 billion euros a year, Scope Ratings calculated. Whether or not Russia moves to disrupt flows — and incur the loss of revenues — the latest action will only lead to an intensification of Europe’s long-term move to reduce its reliance on Russian oil and gas, analysts said.

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

Published

5 days ago

November 8, 2024

Anne Joseph

OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.

Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.

Business, building and support services saw the largest gain in employment.

Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.

Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.

Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.

Friday’s report also shed some light on the financial health of households.

According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.

That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.

People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.

That compares with just under a quarter of those living in an owned home by a household member.

Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.

That compares with about three in 10 more established immigrants and one in four of people born in Canada.

This report by The Canadian Press was first published Nov. 8, 2024.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

Published

6 days ago

November 6, 2024

Anne Joseph

The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

Published

7 days ago

November 6, 2024

Anne Joseph

As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

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