The impact of the situation in Russia and Ukraine on market sentiment comes and goes in a hurry, but the international economic pattern will undergo far-reaching changes. At present, facing a new round of economic and financial sanctions in Europe and the United States, the epidemic in Russia and China is still raging on the 1st. Will there be a new round of economic crisis? Can Russia still exert its resilience and seek vitality in self-sufficiency? Whether Europe and the United States will "cast a rat's deterrent" and there is still room for maneuver in sanctions?
This paper focuses on three aspects: first, tracking the current situation of Russian economy under Western sanctions; Second, review the efforts made by the Russian economy in recent years to resist external sanctions and give play to the function of internal circulation; Third, look forward to the impact of this round of sanctions on Russia and the future situation of the global economy. abstract
I. what is the economic situation in Russia?
1. In the past decade, Russia, as a resource-based economy, has suffered sluggish growth, sustained Western sanctions and devaluation of the ruble. Its GDP in 2020 was US $1.48 trillion, accounting for 1.75% of the world, ranking 11th in the world, slightly lower than China's Guangdong Province and Jiangsu Province. Russia's economic growth has stepped down. The real GDP growth center was 7% from 2000 to 2008 and less than 2% from 2010 to 2019. The Russian economy has experienced four severe recessions, corresponding to the debt crisis in 1998, the financial crisis in 2008, the currency crisis in 2014 and the epidemic crisis in 2020.
2. The oil and gas industry is the pillar of Russia's economy, industry and trade. Oil price fluctuations and European and American sanctions have led to large fluctuations in economic growth. Since 2014, Russia's economic growth has declined. Russia actively promotes the diversification of energy exports, and the EU is highly dependent on Russian imports in the fields of oil and gas and key minerals. This may lead to the EU to retain flexibility in the implementation of sanctions, and the possibility of completely banning energy trade with Russia is low.
3. Russia has a relatively single industrial structure, strong competitiveness in grain, energy and raw materials, and finished products depend on imports. Due to the long-standing contradiction between the upstream squeezing the middle and downstream manufacturing industry, Russia actively promotes the new industrialization led by the national government and implements the import substitution plan. In addition to consolidating the advantageous nuclear energy and aviation industry, Russia also needs to develop high-tech manufacturing industries such as pharmacy, new materials, aviation industry, information and communication, nanotechnology and so on. Russia has actively transformed and cultivated military industrial complexes to drive the development of civil enterprises. On the premise of ensuring national defense orders, Russian military enterprises also expand to the field of civil products and produce dual-use products.
4. Russia's foreign exchange reserves are growing rapidly and its foreign debt continues to narrow. Through the reform of the exchange rate system, we can reduce currency mismatch and reduce the risk of foreign debt. The gold reserves of the Russian Central Bank expanded from US $46.09 billion in 2014 to US $133.07 billion at the end of 2021, an increase of nearly 1.9 times. The ratio of Russia's short-term foreign debt to international reserves is only 9.6%, which is at a very low level in the world.
5. The leverage ratio of the Russian government is far lower than the overall level of emerging economies, and the fiscal deficit ratio is low. The government of the Russian Federation will expand non tax revenue, increase the profits of state-owned enterprises, turn them over to the finance and supplement the state welfare fund.
II. What impact will European and American economic and financial sanctions have on Russia?
6. The basic link between the US dollar sanctions system and Russia in 2014 is still the incremental switch between the US dollar sanctions system and Russia. Historically, Iran was banned from swift in 2012 and 2018. In that year, Iran's crude oil trade fell sharply, dragging down Iran's GDP growth. At present, the EU has not clearly cut off the swift system of which banks, and Russia may still have some space to evade sanctions.
7. Russia has already taken the initiative to implement de dollarization measures. First, establish a domestic financial information exchange system (SPFS), compatible with and supporting multiple currencies, trying to replace swift system; Second, China promotes the lubmir (MIR) payment system; Third, actively contact other developing countries and expand a wider range of payment methods, such as "BRICs payment"; Fourth, the state sovereign funds reduced their holdings of US dollar assets.
8. The escalation of this round of sanctions will impact the Russian economy in the short term, but it is unlikely to cause systemic financial risks. First of all, Russia's GDP is seven times larger than that of Iran, with developed energy supply and basic industries. The internal economic cycle strives to be self-sufficient, and the fundamentals are still supported; Secondly, in the environment of normalization of Western sanctions, the Russian economy gradually gets rid of its dependence on Europe and the United States, which is mainly reflected in the diversification of exports through "retreat from the west to the East" and the development of Chinese industries through the import substitution plan. The demand of the Asian market will provide a buffer for Russia's foreign trade. Finally, Russia reduces debt risk through financial de dollarization and has sufficient foreign exchange reserves, Financial risks are controllable.
III. what impact will European and American sanctions have on the global economy? The shortage of energy supply has pushed up inflation, squeezed the recovery of global manufacturing industry, accelerated the cycle of global interest rate hikes, and suppressed global financial markets
9. The global supply of crude oil and natural gas will be impacted. In the short term, it will continue to promote the rise of energy prices, and the inflation caused by global energy will intensify.
Risk warning: the expansion of local war in Ukraine; Escalation of trade and financial sanctions
