Russia’s economy has been isolated, its billionaires have been sanctioned and hundreds of foreign companies have either left the country or cut back on operations there.
And yet the Russian economy has emerged surprisingly resilient; its currency has bounced back and this week found a way to avoid defaulting on its foreign debt.
“All things considered, it’s holding up better than initially expected,” said Art Woo, a senior economist with the Bank of Montreal.
The Russian economy is still projected to fall into a recession later this year, Woo said. But so far, it has managed to blunt the harshest economic consequences of the Western sanctions, brought in amid the country’s invasion of Ukraine.
Two women walk past a currency exchange office, displaying the exchange rates of the U.S. dollar and euro against Russian rubles in Moscow on April 1. (The Associated Press)
The Russian ruble collapsed by 30 per cent in late February when Western sanctions were first introduced. A month later, U.S. President Joe Biden said the sanctions were working and that the Russian economy was on track to be cut in half.
“As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble,” tweeted Biden in March.
Protecting the ruble
But since then, the value of the currency has almost doubled — largely the result of some deft moves from the country’s central bank as it took quick steps to bolster the ruble.
The Central Bank of the Russian Federation severely restricted the ability of Russian citizens to sell rubles and buy foreign currencies. It has demanded that foreign countries pay for Russian energy products in rubles. And it’s forcing Russian companies still exporting to sell 80 per cent of their foreign-currency revenues and buy rubles instead.
Customers queue at a currency exchange kiosk in Moscow on Feb. 28, just days after Russia invaded Ukraine. The Bank of Russia acted quickly to shield the nation’s $1.5-trillion economy from sweeping sanctions that hit key banks and pushed the ruble to a record low. The currency has since rebounded, thanks to a range of economic measures. (Andrey Rudakov/Bloomberg)
Experts say that has essentially created an artificial demand for the currency, which has boosted its value and kept a floor under the ruble. As the Wall Street Journal put it, the ruble is in “a central-bank-induced coma.”
Meanwhile, the Russian job market has remained solid — and the state has shown its willingness to step in to keep the domestic economy functioning, Woo said.
“We suspect that the government will rely on Soviet‐era tactics (when unemployment was effectively outlawed) and encourage employers to lower salaries/reduce working hours instead of cutting head count,” he told CBC News in an email.
A tanker loads its cargo of liquefied natural gas from the Sakhalin-2 project in the port of Prigorodnoye, Russia, on Oct. 29, 2021. Russia supplies about 40 per cent of Europe’s natural gas and about 25 per cent of its oil, which means the European Union has been hesitant to impose sanctions on Russian energy exports. (The Associated Press)
Energy exports in the crosshairs
At the heart of that strength is Russia’s much vaunted oil and gas exports. Since the invasion of Ukraine on Feb. 24, oil and gas prices have surged.
“The sky-high fossil fuel prices and continued imports into Europe have provided the Kremlin with a major windfall and undermined the effect of economic sanctions,” said Lauri Myllyvirta, lead analyst with the Centre for Research on Energy and Clean Air.
That kind of money buys an awful lot of wiggle room. And combined with the moves by its central bank, the Russian economy is holding its own.
But now the European Union is threatening to cut off some energy exports as well, with possible sanctions on Russian oil on the table and set to be discussed in a meeting Wednesday.
Russia supplies about 40 per cent of the EU’s natural gas and about 25 per cent of its oil.
“Our goal is simple,” Charles Michel, the head of the European Council, said this week. “We must break the Russian war machine. And I am confident that the council will imminently impose further sanctions, notably on Russian oil.”
The mere idea of cutting off Russian energy exports was nearly unimaginable when the conflict began. But as the war dragged on, pressure grew on governments to take more action.
People walk past wrecks of military vehicles in Bucha, on the outskirts of Kyiv, Ukraine, on April 30. The conflict has dragged on for 10 weeks now. (Emilio Morenatti/The Associated Press)
“The politics became so toxic,” said Rory Johnston, managing director and market economist at the Toronto-based Price Street Inc. “Russia’s activities and the human rights abuses in Ukraine [were] so offensive that governments of the world really didn’t have a choice.”
If Europe follows through on the threat and bans Russian oil and gas, that would severely limit Russia’s ability to blunt the blow of Western sanctions.
Economic trouble ahead
And it comes as its central bank was already warning that the country was headed for the worst economic downturn it has seen in decades.
“The sanctions imposed against Russia affected the situation in the financial sector, spurred the demand for foreign currencies, and caused fire sales of financial assets, a cash outflow from banks and surging demand for goods,” said Elvira Nabiullina in prepared remarks first published in English on Friday.
In this handout photo, Russian Central Bank Chief Elvira Nabiullina delivers her speech at the State Duma in Moscow on April 21. (The Federal Assembly of the Russian Federation Press Service via AP)
For the second time in less than a month, Nabiullina slashed the country’s interest rates by three percentage points. She further warned consumer prices could soar by as much as 23 per cent this year.
As the sanctions drag on, she said, exporters and producers will have to seek out new partners and new markets.
“Currently, this problem might be not as acute because the economy still has inventories, but we can see that the sanctions are being tightened almost every day,” she said in a speech at a joint meeting of the State Duma last month.
The yacht Amore Vero is shown docked in the Mediterranean resort of La Ciotat, France, on March 3. French authorities seized the yacht, linked to Igor Sechin, a Putin ally who runs Russian oil giant Rosneft, as part of EU sanctions over Russia’s invasion of Ukraine. (Bishr Eltoni/The Associated Press)
The forecast from the International Monetary Fund (IMF) is even more dire.
“The baseline forecast is for a sharp contraction in 2022, with GDP falling by about 8.5 per cent, and a further decline of about 2.3 per cent in 2023,” the IMF wrote in its global forecast.
The hardest part in assessing the state of the Russian economy is accounting for all the unknowns; even the best experts don’t know how the war will progress or how European countries will respond.
Measuring that uncertainty is the unenviable task of economists like Doug Hostland, associate vice-president at TD Economics.
“Because of the unprecedented nature of what’s happening, we’re really beyond our realm as economists to predict,” he said.
Hostland wrote a research paper into the impact of the potential that Russia may default on its debt. “Foreign investors hold only around $20 billion in Eurobonds issued by the Russian government which is small,” he wrote.
But the threat of a default was a mere distraction from the real concern, Hostland said, which is a broader European banning of Russia’s oil and gas.
“That’s the main event,” he said. “That’s what financial markets and the entire geopolitical perspective is: what is Europe going to do next?”
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.
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.
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.
