Economy

Is Russia’s economy bouncing back? – The Week UK

Published

2 years ago

May 9, 2022

Russia’s economy has so far been able to fend off collapse and could even survive an EU-wide embargo on oil imports, experts have warned.

Aided “by capital controls and high interest rates”, The Economist said “the rouble is now as valuable as it was before Russia’s invasion of Ukraine”. And despite forecasts of economic collapse, Moscow is “keeping up with payments of its foreign-currency bonds”.

As Vladimir Putin massed troops on the border with Ukraine, much was made of whether Russia’s “fortress” economy would be capable of withstanding Western sanctions. So can Moscow ride out the sanctions storm?

Crisis averted?

Despite “predictions of doom” for Russia’s economy, Foreign Policy said that oil exports to countries such as India and Turkey have “actually risen” since Putin gave the order for an invasion. Meanwhile, “its financial sector is so far avoiding a serious liquidity crisis”.

The “real economy” is showing signs that it is “surprisingly resilient too”, The Economist said. Most “measures of Russian economic activity are largely holding up”, with Russian citizens seemingly still “spending fairly freely on cafés, bars and restaurants”.

In mid-April, the nation’s “central bank lowered its key interest rate from 17% to 14%”, a signal that “a financial panic which began in February has eased slightly”. Russia’s economy is “undoubtedly shrinking”, the paper said.

But early “predictions of a GDP decline of up to 15% this year are starting to look pessimistic”.

Fuel in the tank

The sanctions against Moscow “may work in the long run”, Foreign Policy reported. But “for now many of the same countries that are sanctioning Russia are still seriously undercutting their efforts by buying energy” from Moscow.

“Putin is continuing to make at least a billion dollars a day selling oil and gas, and the lion’s share is from Europe,” Edward Fishman, a former Europe specialist at the US State Department, told the magazine.

“Individual European countries are sending military assistance to Ukraine but it’s dwarfed by payments they’re making to Russia for oil and gas.”

This could all change if the EU delivers on its pledge to ban imports of Russian oil.

But Sergey Aleksashenko, the former deputy governor of Russia’s central bank, told the Financial Times (FT) the ban is in reality “not very powerful”, as large increases in the price of oil will counteract the costs of losing the European market.

Russia’s state budget “is heavily dependent on revenues from oil exports”, the FT said, “which accounted for 45% on its total income in 2021”. But the government will continue to “break even if Russian producers can sell their oil for $44 per barrel or more”.

For the moment, it appears sanctions have “made that possibility more, not less, likely”, the paper added, with Russia’s “key crude blend, Urals, trading at $70 a barrel”.

Long-term damage

Moscow’s economy “seems to be holding up better than initially expected”, said Peter Rutland, a professor of government at Wesleyan University in Connecticut. Amid “unprecedented sanctions and an exodus of Western companies”, the rouble has “recovered all of its earlier losses” and “billions of dollars” are flowing into Moscow through energy sales.

But writing on The Conversation, Rutland said that “Russia’s apparently robust financial situation is something of a chimera”, one that “masks the real pain being experienced by Russians and stress on the economy”.

Russian individuals and companies are “encountering shortages of a wide range of goods”, he said, including “pharmaceutical supplies, such as asthma inhalers, and drugs for Parkinson’s disease”. And the picture is “particularly grave in the information technology sector”, which is “dependent on imported hardware and software”.

While the economy is holding firm, “the future looks bleak for Russian citizens”, he added, “who will continue to bear the brunt of the sanctions”.

That Russia’s economy will not collapse entirely is also not a given. It is already “teetering on the brink of default”, The Telegraph said, and worryingly for the Kremlin, which has “averted disaster for now”, is increasingly “at the mercy of US officials”.

Moscow “hasn’t yet buckled under the West’s financial firestorm”, the paper added. “But the long-lasting blow of a default could be coming soon.”

Putin may devise a way of turning Russia into “a permanently state-sanctioned economy”, like, for example, Iran or North Korea, Vox said. But the longer Western sanctions remain in place the worse life in Russia will be, the news site added – and citizens with “the least power may be punished the most”.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

19 hours ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

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

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

Published

20 hours ago

September 17, 2024

Anne Joseph

OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

Published

2 days ago

September 16, 2024

Anne Joseph

FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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