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The Russian economy is headed for collapse – National Post

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THE CONVERSATION

This article was originally published on The Conversation, an independent and nonprofit source of news, analysis and commentary from academic experts. Disclosure information is available on the original site.

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Author: Eric Werker, William Saywell Professor of International Business, Simon Fraser University

To justify invading Ukraine, Vladimir Putin has painted Russia as a hegemonic power re-asserting its rightful claim to imperial greatness. Yet even before the invasion, Russia’s economic capabilities were hardly capable of sustaining an empire.

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Now, with foreign sanctions presiding over a plummeting Russian ruble, Russia’s economic standing has fallen further still. If measured at today’s exchange rates, Russia’s economy would be the 22nd largest in the world, with a gross domestic product (GDP) — not much larger than the state of Ohio’s.

That’s a far cry from the past, when Russia was a true world power. According to data assembled by the late economic historian Angus Maddison, it was the fifth largest economy in the world in 1913, behind the United States, China, Germany and Britain. By 1957, when the U.S.S.R. outpaced the United States to launch the first satellite into space, the Soviet economy was the world’s second largest after America’s.

Putin’s quest for greatness

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Putin was elected president following the chaotic disintegration of the Soviet Union and the 1998 financial crisis in which Russia defaulted on its debt and abandoned its fixed exchange rate.

At the time, Russia’s market-value GDP had bottomed out at US$210 billion, making it the world’s 24th largest economy, behind Austria. (All contemporary GDP figures are from the October 2021 World Economic Outlook published by the International Monetary Fund.)

Putin established an informal social contract with the Russian people based on his ability to deliver strong economic growth. Under Putin’s rule, and buoyed by a commodity price supercycle that would stretch well into the 21st century, Russia’s GDP in market exchange rates rose tenfold, returning Russia to global relevance and providing purchasing power to its middle class.

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However, Russia researchers argued that as Russia’s economy began to flag, from a peak in 2013, Putin sought new legitimacy to govern through foreign policy actions to re-establish Russia’s status as a “great power.” These efforts were epitomized by the Crimean annexation of 2014.

Russia’s invasion of Ukraine, against the backdrop of Russia’s market-rate GDP losing a third of its value between 2013 and 2020, represents a doubling down of Putin’s strategy to seek legitimacy from “great power status,” rather than economic performance.

Yet the West’s unrelenting financial and economic sanctions have only accelerated Russia’s economic downfall.

Russian stocks traded on the U.K. market have fallen by 98 per cent, wiping out US$572 billion of wealth, while stocks on Russian exchanges remain suspended.

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The Russian currency has fallen to 155 rubles per dollar — a drop of more than 50 per cent from 75 rubles per U.S. dollar before the invasion. If not for the rising prices of commodities — brought about by the sanctions themselves — that make up the majority of Russia’s exports, it would fall even further.

Domino effect

A country’s market-rate GDP is its GDP converted to a global currency (like the U.S. dollar) and multiplied by the exchange rate. While there are other ways to measure GDP, when it comes to global trade and investment — and economic power — the market rate is what matters.

Russia’s market-rate GDP in 2021 was US$1.65 trillion, enough to make it the world’s 11th largest economy, behind South Korea. If we crudely convert Russia’s 2021 estimated GDP by March 7, 2022, currency rates, rather than the average exchange rate used last year, and place it against the 2021 market-rate GDP table, the rankings change and Russia slides to 22nd place, falling between Taiwan and Poland.

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This drop is likely an underestimate. While a falling ruble lowers Russia’s exchange rate of its GDP to U.S. dollars, its weakening economy lowers its ruble GDP directly. And Russia’s isolation will erode its economic competitiveness, widening the economic gap further in the medium term.

Ukrainians confronted with the oncoming Russian army were wise to Putin’s chimeric strategy. “Don’t you have problems in your country to solve? Are you all rich there, as in the Emirates?” one elderly man heckled Russian soldiers.

Putin’s next move

Robert F. Kennedy famously observed that GDP failed to account for many things that we care about — like health and education. The fall in Russia’s market-rate GDP cannot begin to describe the human tragedy playing out in both Ukraine and Russia.

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But what these figures do make clear is that Putin’s claim to legitimacy through economic performance is all but destroyed. With “great power status” tied closely to economic power, Putin’s back-door source of legitimacy from stirring up nationalist pride now seems closed as well.

Putin may have led Russia from one “Times of Troubles,” but he has delivered it to another one. That’s cold comfort to the Ukrainians, and indeed to the rest of the world, who are wondering Putin’s next move.

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Eric Werker does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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This article is republished from The Conversation under a Creative Commons license. Disclosure information is available on the original site. Read the original article: https://theconversation.com/the-russian-economy-is-headed-for-collap https://t

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Economy

Opinion: Waves of sanctions were supposed to crush the Russian economy, but it is still showing signs of resilience – The Globe and Mail

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Valves near a drilling rig at a gas processing facility on the Arctic Yamal peninsula, Russia, on May 21, 2019.MAXIM SHEMETOV/Reuters

Near the start of the war, as the sanctions piled up, the Russian economy was thought to be doomed, possibly forcing President Vladimir Putin to sue for early peace. Almost three months later, there is no sign that a peace deal is about to be negotiated, nor is there much sign that the Russian economy is collapsing. The two may be related.

Yes, the Russian economy is hurting and no doubt in recession. But the economy is also showing annoying signs of resilience, in good part because oil and natural gas revenues are climbing even as Europe tries to wean itself off Mr. Putin’s hydrocarbons as punishment for having launched an unprovoked war that is killing an alarming number of civilians and triggering war crimes investigations.

Last week, the International Energy Agency said that Russia’s oil revenues are up 50 per cent this year even though some refiners are refusing to take Russian shipments. But other refiners are buying as much as they can – China and India are gobbling up the cargoes no longer wanted in Europe and North America. Moscow has been earning about US$20-billion this year – money that is used to fund the war – from the sale of crude and refined products.

At the same time, the sanctions, coupled with the proposed embargo on Russian oil exports to Europe, are putting the Europeans into a low-grade panic that is intensifying by the day as energy prices soar and across-the-board inflation takes off – always a popularity-shredding recipe for any ruling politician.

This week Italian Prime Minister Mario Draghi, calling for a ceasefire and the start of peace talks, indicated that the country’s support for the war is waning. Italy was one of the European countries most dependent on Russian energy and one of the biggest exporters to Russia – until the war began. Recent polls say nearly half of Italians now oppose sending arms to Ukraine and a similar proportion say that Russia should be handed Crimea and the eastern parts of Ukraine it now occupies, if doing so is what it takes to end the war. The figure is double the level of those who think Ukraine should fight to reclaim the territories lost to the Russians.

Sanctions and embargoes are tricky, often hazardous, pursuits. The working idea is that those on the receiving end should suffer far more than those delivering them. In this case, the pain is shared by both sides, though Russia is suffering more. Still, as energy writer Irina Slav points out, Europe’s assumption – that Russia needs to sell Europe its hydrocarbons more than Europe needs to buy them – may not hold true.

Take Hungary. The European Union is struggling to ban oil imports from Russia because Hungary is completely dependent on Russian oil; its economy would shut down without them, all the more so since most of its refineries are incapable of processing non-Russian oil. About two-thirds of Hungary’s oil, and more than 80 per cent of its gas, come from Russia.

And because much of the rest of Europe is addicted to Russian hydrocarbons too, the sanctions are taking on a two-sided flavour. Finland revealed Friday that Gazprom, the Kremlin-controlled gas giant that holds a monopoly on Russian gas exports, will cease gas supplies to Finland on Saturday (since Russia supplies only 5 per cent of Finnish gas, the move won’t hurt much but will act as a warning to the European heavyweight economies far more reliant on Russian gas, notably Germany and Italy).

The sanctions and embargo wars, like the war in Ukraine itself, are getting ugly, with no obvious winners or losers. The West is still waiting for the Russian economic implosion.

In March, shortly after war started, JPMorgan predicted a 35 per cent fall in second-quarter Russian GDP over the same period in 2021. Earlier this month, the Wall Street bank said the GDP hit would likely be less severe than it had forecast. They wrote that the data “do not point to an abrupt plunge in activity, at least for now.”

One of the reasons for Russia’s relative rude health is the country’s oil and gas export revenues are not only intact – they’re rising – even as the EU tries to curtail, and ultimately stop, imports of those fuels (the United States and Canada have already banned Russian oil and refined oil products).

Russia was making fortunes from oil and gas revenues even before the war started as global demand rose. Oil began to surge about this time last year as pandemic restrictions eased off and economies bounced back to life. Brent crude, the international benchmark, is up 73 per cent in a year; OPEC undershooting its oil production target is certainly adding to the upward price pressure, much to the irritation of the Americans. Mr. Putin is not complaining.

As Russia’s hydrocarbon revenues rise, its current-account surplus, which includes trade and some financial flows, is hitting record levels. The Institute of International Finance recently estimated that Russia’s surplus could hit US$250-billion this year, about double the figure recorded in 2021. Meanwhile the Russian ruble, which got slaughtered in the early days of the war, has rallied and is one of the top performing currencies in the world, in part due to capital controls and Moscow’s insistence that Gazprom be paid in rubles, not dollars or euros.

To be sure, Russia is suffering. Various Russian and international forecasts predict Russian GDP will shrink by 10 per cent this year. Russia’s central bank is hobbled by the sanctions on its foreign exchange reserves and Western companies are leaving in droves (though Russian companies are picking up some of those discarded assets at fire sale prices). But the country is not suffering enough to be motivated to end the war to save its economy. That may change, but probably not anytime soon.

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Roadshow offering free activities while boosting local economy – My North Bay Now

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If you’re looking for a free outing that’s good for all ages, the Great Northern Ontario Roadshow is in the city this weekend.  

The event is taking place Saturday and Sunday from 10 am to 4 pm outside the North Bay Museum.  

Ryan Land, Director of Education and Northern Programs with Science North, says the two-day event features demonstrations and activities with the Science North bluecoats, a staycation expo, and so much more. 

“We’ll have activities for, we like to say, kids of all ages 0-99, there will be food vendors and we have a big stage set up where we’ll have local entertainment.  It’ll be MC’d by northern comedian Ron Kanutski, and we’ll also have local musicians performing,” he says. 

Land says the roadshow, which is touring across 50 communities, will attract 70,000 visitors.   

“It really is all about re-energizing the local economy and tourism, inviting out makers, growers and vendors to just supercharge the local economy a little bit as we all start to recover on the back end of the pandemic,” he says. 

The event will also highlight some of the private and public tourist attractions and natural wonders around the North.

(Photo by MyNorthBayNow.com staff)

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Cargojet CEO says inflation, labour shortages suggest 'almost recessionary economy' – Financial Post

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2022 ‘very different picture’ for freight carrier

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Cargojet Inc. chief executive Ajay Virmani said fuel prices and labour challenges suggest a recession is looming.

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“All the challenges that you see out there [are] pointing towards almost a recessionary economy,” he said in an interview with the Financial Post’s Larysa Harapyn.

Virmani has a unique sightline on what’s happening in the economy. Cargojet had a good crisis, as the Mississauga, Ont.-based airline tripled its loads as consumers started ordering goods for delivery that they typically would have purchased at a store. Year-over-year revenue growth increased by 46 per cent in the quarter ended March 31, rising to $233.6 million from $160.3 million in the first quarter of last year.

Despite beating earnings expectations, Virmani said that business has levelled off since 2021. “That was a bit of a different story,” he said. “Today, it’s a very different picture.”

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The once-fluid supply chain has faced numerous disruptions, including blockades, floods, and shortages. The chaos of the past couple of years has generated debate about whether supply chains will be shortened, as manufacturers and retailers seek suppliers closer to home to reduce the risk of being left with empty storerooms in the future.

Virmani said he isn’t seeing that yet. But he is seeing firsthand the extreme labour shortages that have come with the recovery from the COVID recession.

“Our biggest challenge right now is making sure that we can have people on the ground,” said Virmani. ”Inflation is a big factor, especially when you have wage rates go up 20 to 30 per cent to find any decent people to work.”

Canada’s inflation rate hit a new 31-year high of 6.8 per cent in April from a year earlier. Wages have also jumped as firms try to retain staff in the country’s tight job market.

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“Everybody’s increasing prices,” said Virmani. Examples of recent price hikes in the airline industry include airport landing and parking fees, NAV Canada navigation charges, and jet fuel prices.

Passing on inflationary costs has been tricky for Cargojet because many of its customers have locked-in contracts.

“You’re not able to pass on 100 per cent of those charges,” said Virmani. ”It’s kind of hard to jam through every area of increase to your customers because there’s no ability for them to pass [it] on either,” said Virmani.”

Cargojet has been branching out into the international market as part of its growth strategy in the post-pandemic world.

“I’ve always said that Cargojet needs to diversify,” said Virmani. “We have the infrastructure in place, we have the resources in place, so basically we had to get some planes and people to fly them.”

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The airline used to be primarily domestic – 80 to 90 per cent of its business, Virmani said – when it launched in 2001. Its business has since evolved, and domestic orders now account for only 50 per cent of business, the CEO said.

  1. A man passes a DHL truck in Berlin, Germany.

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  2. A Cargojet plane lands at the Calgary International Airport on Thursday, March 26, 2020.

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“It’s like McDonalds. They used to serve you lunch and dinner and they added breakfast to their menu,” said Virmani. “We have added sort of our version of breakfast which is international to the menu.”

Air Canada recently expanded its fleet with the acquisition of new freighter aircrafts. But Virmani said it has done little to change the playing field for Cargojet.

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“International is a big market,” he said. “We’ve got a business plan and we’re going to execute it.”

At home, Virmani said Cargojet is shielded from Air Canada and other competitors because few have been in the business for as long as he has. Cargojet has taken over 20 years to build its network in the Canadian market, and that has value, the CEO said.

“There’s a cargo pedigree. There’s a cargo system in place. Minutes matter and I don’t think that anybody who wants to expand in that market field will have great luck,” said Virmani. “You have got to spend a lot of money, or you have got to spend a lot of time on it – and we’ve done both.”

• Email: novid@postmedia.com

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