Over a month into the invasion of Ukraine, Western sanctions are starting to have an impact on Russia’s economy, experts say.
“Their economy is really starting to shrink,” Mark Manger, associate professor at the University of Toronto’s Munk School of Global Affairs and Public Policy, told Global News.
Russia’s gross domestic product is estimated to shrink by 15 per cent by the end of the year, according to the International Institute of Finance.
If levels drop to this level, Russia will see its greatest recession since 1992, according to data from The World Bank. This would also be twice as severe as the 2009 recession.
Here’s a look at how Western sanctions are affecting Russia’s economy.
In March, Russia’s manufacturing sector saw the largest decline since the beginning of the COVID-19 outbreak in 2020, according to S&P Global.
“Driving the downturn were the notably sharper decreases in production and new orders amid muted foreign and domestic client demands,” the company said in a report on April 1.
Employment in the manufacturing sector is “falling at the joint-fastest pace in almost two years” due to firms cutting jobs, according to the report.
Thousands of autoworkers in the small Russian city of Kaluga have been furloughed as Western sanctions hit its flagship foreign carmakers.
Sanctions have exacerbated lingering component shortages and halted production at two flagship car plants: Germany’s Volkswagen and Sweden’s Volvo. Both makers have suspended operations due to the war, affecting 4,200 and 600 workers respectively.
0:24 UN votes Russia out of human rights council citing Bucha killings
UN votes Russia out of human rights council citing Bucha killings
Ford also announced it would suspend its Russian joint venture at the beginning of March.
According to Munk’s Manger, Russia has also begun “cannibalizing” its airplanes for parts after sanctions targeted their export.
“They can’t really get replacement parts for them, so they have to start cannibalizing one plane to keep another one flying,” he said, adding that the impact might be seen for both passenger and military planes.
“That’s similarly going to be the case for virtually every other technology there. If there’s no spares coming, they will have to make do with what they have.”
Value of the ruble
As the value of the ruble continues to fluctuate, some Russians have begun buying goods that may have a more stable exchange, according to Manger.
“If you have enough money, you might buy a smartphone, and if you don’t have a lot of money, you buy canned beans,” Manger said. “They will also lose value but not as quickly as currency.”
Between Feb. 23 and March 4, the value of Russian currency inflated from 80.95 rubles to 108.19 rubles per U.S. dollar as a result of international sanctions imposed after the invasion, according to S&P Global.
But even as the West piles on more sanctions, Russia’s central bank has managed to stabilize key aspects of the economy with severe controls, artificially propping up the ruble so it can rebound to levels seen before the invasion of Ukraine.
The central bank of Russia said Friday that it was lowering its benchmark interest rate and said more rate cuts could be on the way.
However, despite a ruble rebound, there’s no real market for it as it continues to face sanctions, Manger said.
S&P Global has downgraded its assessment of Russia’s ability to repay foreign debt, creating the possibility that Moscow will soon default on external loans for the first time in more than a century.
The credit ratings agency issued the downgrade to “selective default” late Friday after Russia arranged to make foreign bond payments in rubles on Monday when they were due in dollars. It said it didn’t expect Russia to be able to convert the rubles into dollars within the 30-day grace period allowed.
S&P said in a statement that its decision was based partly on its opinion that sanctions on Russia over its invasion of Ukraine “are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical abilities to honour the terms and conditions of its obligations to foreign debtholders.”
Empty grocery stores
Despite Moscow telling citizens there is no lack of food and urging them not to panic-buy staples like sugar and buckwheat, some Russian towns have begun to sell out of products.
A note “It is important that there are enough goods for everyone. We are forced to impose temporary restrictions on goods in high demand. Up to ten items per purchase” is written on a shelf of the Lenta store, a grocery store.
Photo by Igor Russak/picture alliance via Getty Images
In the Russian town of Pokrov, sugar has sold out in many stores and residents expect some goods to become unaffordable as Western sanctions over Moscow’s military intervention in Ukraine take hold, according to a Reuters report.
“It’s becoming more and more difficult for Russia to import things and that leads to these empty shelves,” Manger said.
A lot of products have left the country as North American and European countries pulled stock and brands, including Starbucks and McDonald’s, have also left.
“Branded products are now going to be more and more difficult to find,” Adam Pankratz, lecturer at the University of British Columbia’s Sauder School of Business, told Global News.
“When you add on aggression and a war, things are going to get worse. You’re going to see pictures of empty supermarket shelves and missing products in stores.”
2:05 Ukraine’s foreign minister warns Donbas battle will remind world of Second World War
Ukraine’s foreign minister warns Donbas battle will remind world of Second World War
“The big elephant in the room is that Canada and the U.S. immediately imposed an embargo on Russian oil, but the rest of the world hasn’t,” Manger said.
“People might say, ‘they can easily ship it elsewhere,’ but it’s actually not that easy,” he said, noting Russia’s oil is already trading at a 20 per cent discount.
Due to Russian oil being heavy crude, it’s only useful for specific refineries, according to Manger.
Additionally, some countries could be hesitant to purchase Russian oil in fear of being targeted by secondary sanctions from the West.
Despite sanctions, however, some countries across the globe have continued to purchase Russian oil.
“Russia is selling at a discount, but they’re selling to India and China,” Pankratz said. “It’s coming from Russia because they’re buying it at a discount because the Russians can’t sell it elsewhere.
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.
