Russian macro: a Sisyphean task
As the Western sanctions continue to mount, it now becomes clear that Russia’s ruling elite didn’t consider various scenarios of how the attack on Ukraine could develop and bounce back on Russian citizens. Such an outcome was difficult to expect as the attack seemed so irrational and dangerous for Russia itself. Apart from selected oligarchs and public finance, sanctions have affected many ordinary people, particularly the middle class. Although it could well be the case that in the short-term (i.e., after the initial shock is digested) Russia might manage to maintain a kind of macroeconomic stability, it would be with a different exchange rate and interest rates. Even though Russia’s growth numbers looked good in 2021 at this stage it is hard to more or less accurately envisage where the economy will be heading this year, not to mention in years ahead.
Nonetheless, if the oil price stays high enough, then it shouldn’t be a problem for the Russian banks and companies to service and repay foreign debt in the next few months even with a weaker ruble as part of this debt is intra-company debt that may be rolled over. Part of the foreign debt is denominated in rubles. Given that energy prices were high enough in February and may stay elevated in the rest of 1H21 the current account surplus is likely to be very strong – especially as imports could start shrinking.
Going forward, Russia’s current account should remain rather positive as it was always in the past – even when the price of oil was low as currency weakening works as an automatic stabilizing force.
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