Russian economist says sanctions 30%-40% effective

Moscow — Russia’s economy was on track to expand by 5%-6% in 2022 had Western sanctions not derailed growth for years and ushered in a period of technological stagnation, Russian economy veteran Oleg Vyugin said.

Vyugin said there had been no catastrophe, with the sweeping sanctions imposed against Moscow in response to its invasion of Ukraine being only 30%-40% effective. Russia has found ways to overcome restrictions, he said, but warned of serious problems should Russia’s soaring export revenues fall.

“If there were no sanctions, the Russian economy could have grown 6% this year,” said Vyugin, who served as deputy finance minister and deputy central bank governor during his career before he retired from a Moscow Exchange post this year.

“In January-February one could see a very strong take-off coming. It turns out that there is a negative effect. Instead of 5% growth, we got a fall of 4%, so sanctions work.”

President Vladimir Putin expects GDP to decline 2% this year, a more optimistic forecast than his economy ministry’s expectation of about a 3% contraction, but much more optimistic than the World Bank’s April expectations of an 11.2% collapse.

Russia’s current account surplus — the difference in value between exports and imports — more than tripled year on year in the first eight months of 2022 to a record $183.1bn as revenues soared while sanctions caused imports to plunge. Still, the central bank expects the surplus to shrink in the second half of the year.

Vyugin said the outlook was gloomy with no end to the conflict in sight. “Numbers can be varied, but the main result of sanctions is that the economic growth process in Russia has been interrupted for several years,” he said.

“While export revenues are high, the economy receives very strong support,” he said. “If exports are strongly restricted … this will cause serious harm and we will see the next cycle of falling GDP.”

After imposing strict sanctions on Russia, including cutting some of its top banks from the global financial system, Western countries and their allies are now preparing to limit usage of Russian oil and gas.

China, meanwhile, is reaping the rewards of cheaper energy supplies from Russia, as Moscow looks east in search of alternative markets.

Vyugin expects the effect of sanctions to be delayed in the technology sector, where the reliance on imports is high.

Industry sources said last month that Russian airlines, including state-controlled Aeroflot, had started to strip jetliners to secure spare parts they can no longer buy abroad.

“The world will move forward, but Russia will only use some second-grade technology and spend huge resources to recreate what there already is in the world, but can’t be imported,” Vyugin said.

“If the situation doesn’t change, Russia will see a gradual decline in the level of technological development.”

Reuters