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Steve Rosenberg: Russia’s economy is growing, but can it last?
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Russia’s economy is growing, but can it last?
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Russia’s large-scale invasion of Ukraine in February 2022 not only provoked international outrage. It also triggered a wave of sanctions aimed at weakening the Kremlin’s ability to wage war against its neighbor.
Russia’s assets abroad have been frozen, its economy isolated from the global financial system and its energy exports targeted.
I remember Western officials and commentators describing the sanctions as “crippling,” “debilitating” and “unprecedented.” With adjectives like these filling the airwaves, the situation seemed clear. There was certainly no way Russia’s economy could withstand the pressures.
Faced with the prospect of an economic collapse, the Kremlin would be forced to retreat and withdraw its troops. Would not be?
Twenty-seven months later, the war continues. Far from being paralyzed, Russia’s economy is growing. The International Monetary Fund predicts that Russia will register economic growth of 3.2% this year. Caveats aside, this is still more than in any of the world’s advanced economies.
“Debilitating” sanctions did not produce shortages in stores. Russian supermarket shelves are full. It is true that rising prices are a problem. And not everything that was for sale still is – a number of Western companies have pulled out of the Russian market in protest against the invasion of Ukraine.
But many of its products still reach Russia via various routes. If you look hard enough, you can still find American glue in Russian stores.
CEOs from Europe and America may no longer be flocking to Russia’s annual economic event – but organizers of this year’s St. Petersburg International Economic Forum (formerly referred to as Russia’s Davos) say delegates from more than 130 countries are attending. countries and territories.
Rather than buckling under the weight of Western sanctions, the Russian economy has been developing new markets in the East and Global South.
All this allows Russian officials to boast that attempts to isolate Russia, politically and economically, have not been successful.
“It seems that the Russian economy has managed to adjust to very unfavorable external conditions,” says Yevgeny Nadorshin, senior economist at PF Capital. “Without a doubt, the sanctions have greatly broken the functioning mechanism of the economy. But a lot has been restored. Adaptation is happening.”
Work around
Does this mean the sanctions have failed?
“The big question was our understanding of what sanctions can and cannot do,” says Elina Ribakova, senior researcher at the Peterson Institute for International Economics.
“It’s not like pressing a button and Russia disappears. What sanctions can do is temporarily unbalance a country until it finds a way around the sanctions, until it finds alternative ways of getting shipments or selling its oil. We are exactly in that space where Russia has found an alternative solution.”
Moscow redirected its oil exports from Europe to China and India. In December 2022, G7 and EU leaders introduced a price cap plan aimed at limiting the revenue Russia earns from its oil exports, trying to keep them below $60 per barrel. But Western experts admit that Russia managed to get around this situation quite easily.
Image source, Getty Images
The price cap story highlights a dilemma for the US and its partners.
Recognizing that Russia is one of the biggest players in the global energy market, they tried to maintain the flow of Russian oil to prevent energy prices from rising. The result of this is that Moscow continues to make money.
“In a way, we refused to adequately sanction Russian oil,” concludes Elina Ribakova. “This price cap is an attempt to have our cake and eat it. The priorities are to allow Russian oil to enter the market and reduce Russia’s revenues. And when these two priorities conflict, unfortunately the first one wins. This allows Russia to collect a lot of revenue and continue the war.”
Russia has become China’s largest oil supplier. But Beijing’s importance to Moscow goes far beyond energy exports. China has become a lifeline for the Russian economy. Trade between the two countries reached a record $240 billion (£188 billion) last year.
Walk through St. Petersburg or Moscow and you don’t need to be an economics expert to understand how important China has become to a sanctions-hit Russia. Electronics stores here are full of Chinese tablets, gadgets and cell phones. Chinese car dealers now dominate the local car market.
Not that the Russian auto industry is sitting around doing nothing. At a trade exhibition recently in Nizhny Novgorod, Russian Prime Minister Mikhail Mishustin saw the new version of a classic Russian brand, the Volga. There was only one thing: the new Volga is based on a Chinese car, the Changan.
“Where was this steering wheel made? Is it Chinese? asked the prime minister, apparently irritated by the lack of Russian components.
“We want [the wheel] be Russian,” he said.
Ultimately, however, it is not the automobile industry that drives Russia’s economic growth.
Military spending is doing this.
Image source, Getty Images
Image caption, Vladimir Putin visits a tank factory in the Urals
Since Russia launched what the Kremlin still calls a “special military operation” in Ukraine, weapons factories have been working 24 hours a day and more and more Russians have been employed in the defense sector.
This drove up wages in the military-industrial complex.
But spend too much on the military and there will be less to spend on everything else.
“In the long term, we are destroying the economy”, believes Chris Weafer, founding partner of the Eurasian consultancy firm Macro-Advisory. “There’s no money going toward future development.”
He says that in 2020 there was a lot of discussion about the National Project program, under which $400 billion would be spent on improving Russia’s infrastructure, transport and communications. Instead, “almost all of this money was diverted to finance the military-industrial complex and support the stability of the economy.”
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After more than two years of fighting, Russia’s economy has adapted to the pressures of war and sanctions. But the US is now threatening with secondary sanctions foreign banks that help with transactions with Moscow, and this is creating a whole new set of problems for Russia.
“The arrival of products in Russia has slowed down,” says Chris Weafer. “Spare parts are more difficult to access. Every day there are stories of banks in China, Turkey and the Emirates refusing to handle Russian transactions, whether it is money from Russia to buy goods or money going back to Russia in payment for oil or other imports. Unless this is resolved, Russia will face a financial crisis in the autumn.”
This is why it would be wrong to conclude that Russia beat the sanctions. So far, ways have been found to deal with them, bypass them and reduce their threat.
But the pressure of sanctions on the Russian economy has not disappeared.
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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