Six months into Russia’s war in Ukraine, severe economic sanctions initiated by the US and the EU seem to be having the twofold effect of stifling Russia’s economy and encouraging divestment by large corporations, with the US-based Citibank the latest to announce its formal withdrawal from the Russian market.
Citibank on Thursday issued a press release stating its intention to wind down its consumer and local commercial banking enterprises in Russia as part of a longer-term “global strategic refresh” first announced in April 2021. “We have explored multiple strategic options to sell these businesses over the past several months. It’s clear that the wind-down path makes the most sense given the many complicating factors in the environment,” CEO of Legacy Franchises Titi Cole said in the release, though as of July the bank was still attempting to negotiate a sale of its local commercial and consumer banking sectors to local Russian companies, the Financial Times reported at the time. Sanctions complicated the sale to at least one potential buyer, Rosbank; owner Vladimir Potanin was recently sanctioned by the UK.
Citibank’s announcement, and the decision to wind down its operations rather than continue to pursue sales, is somewhat of an indicator that sanctions and bans are having their intended effect. “Months ago, the United States banned all new investment in Russia’s economy,” senior research scholar at Columbia University’s Center for Global Energy Policy Eddie Fishman told Vox via email. “So any US companies that remain in Russia are barely keeping the lights on.”
However, that doesn’t mean the Russian economy has collapsed; Russia’s central bank has been adjusting the country’s monetary policy to keep the ruble afloat, and it’s currently the strongest it’s been against the dollar since 2018, CNN reported Sunday. After a crash early in the war, when the US froze $600 billion in foreign currency reserves, the central bank took aggressive action, hiking interest rates to control inflation. That seems to have paid off, with inflation apparently leveling out after an April high of 18 percent.
Additionally, banks and businesses from other countries including China and Japan have helped to soften the blow somewhat, either by maintaining their business ties to Russia or committing to expanded investments there. China and India have both ramped up fuel purchases including coal despite sanctions on Russia’s fossil fuel industry, as well.
Sanctions take some time to affect a major economy
Russia has also been working to mitigate the sanctions’ impact since the US originally imposed sanctions in 2014 because of Russia’s invasion of Crimea. When major Western businesses like McDonald’s, Starbucks, Visa, and Mastercard left the country early on in the invasion, there were Russian companies there to mitigate the blow, Andrey Nechaev, Russia’s former economy minister, told CNN. “The exit of Mastercard, Visa, it barely had an impact on domestic payments because the central bank had its own alternative system of payments.” Fast-food, too, is now becoming a homegrown enterprise, with McDonald’s franchises reopening under the name Vkusno i tochka — Tasty, and that’s it — and Starbucks is now going by Stars Coffee. Starting in 2014, the government pushed Western franchises to get their supplies locally; that policy has paid off, since imports are now difficult to come by.
Despite the preparations the Russian government made to help the economy weather the West’s aggressive sanctions regime, those controls aren’t sustainable forever. Furthermore, Russia still can’t import critical technological supplies, and its economy is heavily reliant on fuel exports and is currently benefiting from high prices due to inflation.
“Sanctions are having a dramatic impact on Russia’s economy,” Fishman said. “Even the most conservative estimates suggest Russia’s GDP will contract by 6 percent this year — a larger hit than the 1998 Russian financial crisis. Absent sanctions, Russia’s economy was poised for growth this year.” The country’s inability to import goods “has led to shortages of foreign components and rapidly declining industrial production. The result has been a wave of underemployment that will eventually translate into layoffs and declining living standards.”
Russia’s fuel industry ultimately has a limited lifespan, Thane Gustafson argues in his book Klimat: Russia in the Age of Climate Change. Russia’s economy is so deeply tied to fossil fuels that it has no significant alternative industry to make up for the money it rakes in from those revenues. In 2019, oil and gas exports accounted for 56 percent of Russian export income, totaling $237.8 billion. Those revenues contributed to 39 percent of the national budget, according to Gustafson. Without a strong oil and gas industry — high prices and a large customer base — Russia’s economy will, eventually, suffer due to the lack of diversification.
What’s more, the full brunt of fuel sanctions hasn’t yet come to bear; in December, the EU will ban 90 percent of all Russian oil imports, slashing Russia’s output by as much as 2.3 million barrels of crude and oil products per day by February 2023, according to the International Energy Agency. It could be difficult to find new customers for those products, Bloomberg reports, as outflows to Asian markets have steadied in recent weeks.
What role does foreign divestment play?
Sanctions are only part of the strategy; foreign divestment represents a blow to the Russian economy, though not as severe as curtailing oil and gas revenues and critical imports. Though many companies, including US and European corporations, are continuing to do business in Russia, over 1,000 corporations have expressed their intent to withdraw from the country to some degree, according to research from the Yale School of Management’s Chief Executive Leadership Institute.
“It could take months or even years for some companies to fully unwind their businesses [in Russia],” Fishman told Vox. “But that doesn’t mean they are funneling money into Russia.” Financial services companies, heavy machinery, airlines, oil companies, fast food, and retail companies based all over the world have suspended their operations in Russia, impacting people at a variety of income levels. Russian companies and the ultra-wealthy, for instance, can no longer get a Deutsche Bank loan, and ordinary people won’t be able to buy Nike shoes once the company fully exits Russia as it announced in June it would.
For consumer goods like Nike, the decision to divest is one that won’t substantially impact the bottom line; according to Reuters, less than 1 percent of the company’s revenue comes from Russian and Ukraine combined.
Russia, for its part, has since the collapse of the Soviet Union, “remained suspicious of integration, resistant to openness, ambivalent toward foreign investment, and isolated from major scientific and technical currents,” Gustafson writes in Klimat. Those tendencies have only increased during President Vladimir Putin’s rule, according to Gustafson; any promise most foreign companies did see in the Russian market is now likely gone or short-lived at best.
“The Russian economy is one of the riskiest destinations for foreign investment, and it will remain so at least until sanctions are removed,” Fishman said. On the contrary, capital flows have often gone the other way, Gustafson writes in Klimat. “Russia suffers in particular from the tendency of Russian companies and individuals to move their capital out of Russia,” with the ultra-rich often moving their wealth to off-shore havens. In fact, according to a 2018 study by Filip Novokmet, Thomas Piketty, and Gabriel Zucman which Gustafson cites, “the wealth held offshore by rich Russians is about three times larger than official net foreign reserves, and is comparable in magnitude to total household financial assets held in Russia.”
Where is Russia’s economy headed — and how does that affect Ukraine?
Sanctions projects are, in theory, supposed to impose sufficiently and suitably painful conditions that push the sanctioned state to change its behavior. At six months in, Russia hasn’t felt the full extent of the economic pain that it will in the future should the US, UK, and EU be able to maintain the energy embargo in particular.
“The big question, though, is whether all this economic damage is advancing worthy policy goals,” Fishman said. “And it’s a hard question to answer, as we can never know the counterfactual.”
“For the last two decades, Putin has used Russia’s access to the global economy to build up a military machine and pursue an imperialist foreign policy. Going forward, that will be much harder for Putin, as Russia’s economy has little hope of dynamism under these sanctions, which are likely to stay in place for a long time,” Fishman said. “Sanctions aren’t changing Putin’s desire to bully neighbors — but they are reducing his means to make good on his threats.”
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.
