The sudden fall of the Russian ruble. As a result of sanctions or internal speculation?

MOSCOW – More than a year after the start of the war in Ukraine, the Russian economy is in a better position than expected in the first months of the war and sanctions, and even the estimates of the International Monetary Fund and both the ministries of finance and economy indicate that the economy will return to growth during the current year.

So far, expectations of a collapse of the Russian economy have not been realized, as inflation in Russia has been lower than in Europe, according to RIA Novosti analysts based on data from the statistical services of UN member states.

Overall, as the war in Ukraine continues and the Russian economy remains under the sword of Western sanctions, Russia currently ranks 50th in the ranking of countries in terms of inflation.

Although Russia's GDP fell by 2.1% in 2022, this was not matched by last spring's pessimistic forecasts, and while household spending fell by 1.8% at constant prices, fixed-asset investment increased by 5.2%.

Reverse current

However, the ruble's sharp recent depreciation against the euro, the US dollar and the Chinese yuan has raised questions about the sustainability of the positive outlook for economic conditions in the country, at a minimum until the end of this year, and whether the risks of an economic recession remain.

At the beginning of last week, the ruble depreciated sharply, and the Russian currency lost more than 6% of its value, after the dollar exchange rate rose during trading on the Moscow Stock Exchange above 81 rubles, for the first time since April 15, 2022. The Russian currency is currently trading at 81.43 rubles per dollar.

The collapse came as a surprise, as weakness was expected by the end of the year.

The ruble fell sharply against the US dollar and other currencies early last week (Getty Images)

Summer Cloud

Russia's central bank explained the ruble's devaluation as a "result of touching the bottom point" in receiving export earnings that fell at the start of the year, but stressed that the dynamics of its recovery would be smoother.

Most Russian economists tend to say that the current decline in the ruble is due to a shortage in the flow of foreign currency into the country and a decrease in oil and gas revenues, and they are confident that the coming months will see an improvement in the situation with the influx of foreign currency against the backdrop of the Russian economy and commodity exporters adapting to external sanctions.

In addition to these reasons, economist Victor Lachon adds – in an interview with Al Jazeera Net – other factors, including the decline in oil prices, speculation in the foreign exchange market, the sharp increase in spending in the budget, and the instability of the situation in the balance of payments.

Although the strength of the national currency increases at the end of each month - according to Lashon - when exporters sell foreign currency during the tax period and the trend of correcting the ruble begins, this does not in any case eliminate the existence of challenges whose long-term impact may reduce Russia's economic security in general, make it vulnerable to external challenges, and significantly weaken its position on the world stage.

Among the most important of these threats, according to the same speaker, are low rates of economic growth, heavy dependence on the energy sector, technological backwardness of the industrial sector, lack of investment, capital outflows, low innovations and imbalances in the budget system, and a high level of differentiation between regions.

Uncertainty

Lachon added that even with the best-case scenarios of currency stability, the chances of a deterioration in the situation of the middle class and the social and psychological well-being in general of the population will remain, until the state completes the measures to confront the crisis and the repercussions of sanctions, foremost of which is securing the alternative represented by "friendly markets."

According to him, the local economy continues to bear the pressure of sanctions in a number of indicators, although the population has not yet fully felt their impact. As the overall unemployment rate continues to decline, the labor market is likely to continue to adjust due to changes in wages and hours worked, but may nonetheless have tangible effects on household income and poverty risk.

The current decline in the ruble is due to a shortage in the flow of foreign currency into the country and a decline in oil and gas revenues, according to Shutterstock analysts

Unexpected decline of the ruble

For his part, economist Sergey Artesyan believes that the sharp decline in the ruble was not expected, as despite the expected weakness of the ruble at the end of 2022 due to the entry into force of the European oil embargo, the loss of more than 6% of the ruble in just two days surprised the market.

According to him, the main reason lies in the sharp increase in imports against the significant decline in the volume of exports, which economic growth over the past ten years has already been determined by the rate of increase.

He adds that, over the next 10 to 15 years, the growth rate of the Russian economy could be stabilized at a very low level of about 1% per year, according to him.

At the same time, he points to the impact of geopolitical factors (sanctions and war in Ukraine) that accelerated the beginning of a period of low growth rates.

Artesyan warns that while the current weakness of the Russian currency is speculative in nature, over time it could lead to an increase in the prices of basic goods and other services, with potentially social dissatisfaction.