As the Russian economy continues to grow, are sanctions not working?

6 mins read

Sanctions against Russia ‘may not have the impact the West had hoped for’ after the International Monetary Fund (IMF) forecast, a financial expert said.

The IMF estimated that the UK economy will shrink by 0.6 per cent, against 0.3 per cent growth in October, according to an analysis quoted by the Independent newspaper. This puts the UK in last place compared to G7 countries.

This pessimistic outlook puts the UK even behind Russia, which has been sanctioned for its invasion of Ukraine.

This raised questions as to whether the sanctions had done enough damage to the Kremlin.

Contrary to previous forecasts, the IMF reported that Russian production will increase by 0.3 per cent this year and 2.1 per cent next year.

Russia is seen as a rising economy as it continues to trade with other countries.

The statement made by the IMF Spokesperson included the following statements;

[su_quote]”At the current G7 oil price ceiling, Russian crude oil export volumes are not expected to be significantly affected as Russian trade continues to be diverted from sanctioned countries to non-sanctioned countries.”[/su_quote]

“In terms of sanctions, the immediate impact on Russia’s financial and military base does not appear to be as strong as the West had hoped,” said Santa Zvaigzne-Sproge, financial analyst and head of Conotoxia Investment.

Zvaigzne-Sproge said that Russia is finding new markets for oil and gas production in response to the European Union’s (EU) restrictions, but there may be longer-term effects such as a ‘brain drain’ in senior jobs;

“Meanwhile, the UK, like other EU countries, is still struggling with severe inflation. As these countries are facing the biggest decline in living standards to date, lower gas prices may not be fully reflected in the purchasing power of households. Moreover, the financial and military aid to Ukraine may have put additional pressure on the UK budget. It is worth noting that the UK is facing all the above-mentioned challenges, in addition to the various Brexit-related concerns already in place.”

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The UK has imposed sanctions on more than 1,200 individuals and 120 businesses since Russia’s invasion of Ukraine.

This includes sanctions on major banks, including Sberbank and Credit Bank of Moscow, as well as a gradual halt to oil imports and a ban on exports of critical technologies.

In addition, the government is removing selected banks from the SWIFT international payment system, which Russian President Vladimir Putin has said would paralyse the system of access to finance.

“We have stopped Russian aircraft from flying or landing in the UK and banned their ships from entering our ports, removing Russia from the international community,” a government statement said.

Governments in Europe and the US have capped the price of Russian oil exports at $60 per barrel.

Dr Margaryta Klymak, an economics lecturer at Oxford University, said there was some evidence that Russia had already been affected by the sanctions;

“There have been negative impacts on Russia’s financial sector, a decline in imports, particularly of high-tech products, and exports, as well as negative net foreign direct investment inflows. The impact of sanctions may not be as fast as expected, but the negative impact of sanctions on Russia is expected to gradually increase over time.”

Fred Winchar, CEO of US-based financial company Max Cash, said there is pressure on Russia’s finances, although the figures do not yet show this.

Winchar continued his comments with the following statements;

“The country’s average economic growth has declined by 2 to 3 per cent. This has put pressure on import bills and constrained public finances, making it difficult for the country to finance the war. With sanctions in place, it is not yet clear whether the Russian economy will recover any time soon. These sanctions and export controls have effectively denied Russia access to key technologies and industrial inputs necessary for its military operations. This has led to a reduction in the number of professional soldiers Putin can deploy.”

Leigh Hansson, partner at US-based law firm Reed Smith, commented;

[su_quote]”Despite the comments that the sanctions against Russia have had little impact, I think it’s clear that they have had an impact. The initial ‘wait and see’ approach adopted by many companies at the start of the occupation has been replaced by a more active approach from the private sector. As time has gone on, the pressure has increased and companies are looking to terminate or downsize their activities in Russia, if they haven’t already done so. There has been a kind of migration and so clearly the sanctions are having an impact.”[/su_quote]



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