Economy

'Slower burn.' Russia dodges economic collapse but the decline has started – CNN

Published

2 years ago

August 28, 2022

London (CNN Business)Six months after invading Ukraine, Russia is bogged down in a war of attrition it didn’t anticipate but it is having success on another front — its oil-dependent economy is in a deep recession but proving far more resilient than expected.

“I’m driving through Moscow and the same traffic jams are there as before,” says Andrey Nechaev, who was Russia’s economy minister in the early 1990s.

The readiness of China and India to snap up cheap Russian oil has helped, but Nechaev and other analysts say Russia’s economy has started to decline and is likely facing a prolonged period of stagnation as a consequence of Western sanctions.

On the surface, not much has changed, bar a few empty storefronts that once housed Western brands that have fled the country in their hundreds. McDonalds (MCD) is now called “Vkusno i tochka”, or “Tasty, and that’s it” and Starbucks (SBUX) cafes are now gradually reopening under the barely disguised brand Stars Coffee.

The streets of Moscow are as busy as ever.

The exodus of Western businesses, and wave after wave of punishing Western sanctions targeting Russia’s vital energy exports and its financial system, are having an impact, but not in the way many had expected.

Nechaev, who presided over some of Russia’s most turbulent economic times and helped steer its transition to a market economy, credits some of this to the central bank.

The ruble did crash to a record low to the US dollar earlier this year in the wake of the invasion as the West froze about half of Russia’s $600 billion foreign currency reserves. But it’s bounced back since to its strongest level against the US dollar since 2018. (Remember President Joe Biden’s threat of reducing it to “rubble”?)

That’s largely the result of aggressive capital controls and rate hikes back in the spring, much of which have now been reversed. Interest rates are now lower than before the war, and the central bank says inflation, which peaked at almost 18% in April, is slowing and will be between 12% and 15% for the full year.

The central bank has also revised up its GDP forecast for the year, and now expects it to shrink by 4% to 6%. In April, the forecast was for an 8% to 10% contraction. The International Monetary Fund also now predicts a 6% contraction.

Moscow had been trying to build a ‘fortress economy’ since annexing Crimea in 2014.

It helped that the Kremlin had eight years to prepare, spurred by the sanctions the West imposed after Moscow annexed Crimea in 2014.

“The exit of Mastercard, Visa, it barely had an impact on domestic payments because the central bank had its own alternative system of payments,” says Nechaev.

Russia set up the Mir credit card, and its own transaction processing system in 2017.

And there’s a reason Russian fans of McDonalds and Starbucks are still able to get their fast-food fix, says Chris Weafer, founding partner of Macro Advisory Ltd, a consultancy advising multinational businesses in Russia and Eurasia.

Since 2014, many Western brands in Russia caved to government pressure and localized some or all of their supply chains. So when these companies left, it was relatively easy for Russian buyers to buy them and keep running them simply by changing the wrapper and packaging.

“Same people, same products, same supply,” says Weafer.

It’s not an entirely watertight strategy, though.

The re-branded McDonald’s stores reported a shortage of French fries in mid-July, when Russia’s potato harvest fell short, and foreign suppliers wouldn’t fill the gap due to sanctions.

Can Russia’s energy boom continue?

Fast food continuity is one thing. Russia’s longer term stability rests on its energy sector, still by far the biggest source of government revenues.

To say high energy prices have so far insulated Russia would be an understatement.

The International Energy Agency says Russia’s revenues from selling oil and gas to Europe doubled between March and July this year, compared to an average of recent years. That’s despite declining volumes. IEA data shows gas deliveries to Europe are down by about 75% over the past 12 months.

Oil is a different matter. The IEA’s March prediction that 3 million barrels a day of Russian oil would come off the market from April because of sanctions, or the threat of them, has not materialized. Exports have held up, though Rystad Energy analysts note a slight drop over the summer.

The major factor has been Russia’s ability to find new markets in Asia.

According to Houmayoun Falakshali from commodities consultancy Kpler, most of Russia’s seaborne oil exports have gone to Asia since the start of the war. In July, the share was 56%, compared to just 37% in July 2021.

Russian seaborne oil exports to Asia have soared this year.

Between January and July this year, China increased its seaborne imports of heavily-discounted Russian Urals crude by 40%, compared to the same period last year, according to Kpler data. That’s despite China’s initial efforts to avoid the appearance of taking sides in Russia’s war on Ukraine. India’s seaborne imports from Russia are up more than 1,700% over the same period, according to Kpler. Russia has also been increasing gas exports to China through a Siberian pipeline.

What happens when Europe’s embargo on 90% of Russian oil comes into force in December, will be critical. An estimated 2 million barrels a day of Russian oil will be in limbo, and while it’s likely some of that will go to Asia, experts doubt whether demand will be high enough to absorb it all.

Falakshali says China cannot buy much more Russian oil than it already is, because of a domestic slowdown in demand, and because it simply doesn’t need much more of the specific type of oil Russia exports.

Price will play a critical role, too, in whether Russia can afford to keep discounting to secure new markets.

“A discount of 30% from $120 a barrel is one thing,” Nechaev points out. “A discount from $70 is another matter.”

‘Slower burn’

While global inflation is helping Russia’s energy sector, it’s hurting its people. Much like the rest of Europe, Russians are already suffering a cost of living crisis, made much worse by the war in Ukraine.

Nechaev, who helped steer Russia through a much more dramatic economic collapse in the 1990s, is worried.

“In terms of the standard of living, if you measure it by real incomes, we have gone backwards by about 10 years,” he says.

The Russian government is spending to try to combat this. In May, it announced it would raise pensions and the minimum wage by 10%.

It’s set up a system where employees of companies that have “suspended their activities” can temporarily transfer to another employer without breaking their employment contract. And it’s spending 17 billion rubles ($280 million) buying the bonds of Russian airlines, crippled by airspace bans and sanctions preventing maintenance and the supply of parts by foreign manufacturers.

It’s technology sanctions, like those affecting the airline industry that may have the most profound impact on Russia’s long-term economic prospects. In June, US commerce secretary Gina Raimondo said global semiconductor exports to Russia had collapsed by 90% since the war started. That is crippling production of everything from cars to computers, and will, experts say, put it further behind in the global technology race.

“The impact of sanctions will be more a slower burn rather than a quick hit,” says Weafer. “Russia is now looking at potentially a long period of stagnation.”

Nechaev is even more definitive. “Right now, the economic decline has started,” he says.

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Business

A timeline of events in the bread price-fixing scandal

Published

5 hours ago

September 19, 2024

Anne Joseph

Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

Published

5 hours ago

September 19, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

Published

20 hours ago

September 18, 2024

Anne Joseph

VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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