OpinionPolitics

Putin’s Russian Economy

Vladivostok, September 7, 2022

Eastern Economic Forum

Russian Federation President Vladimir Putin kicked off the multi-day Eastern Economic Forum in Vladivostok with a one hour address plus Q&A time on September 7. Prime Ministers or senior officials from China, India, Malaysia, Mongolia, Armenia, and Vietnam also attended and gave addresses in person or by video.

US M142 HIMARS rocket launcher. Public domain photo.

Putin appeared to be in vigorous health and stood more than two hours during his presentation and the Q&A.

The overall focus was on economic development of the Asia-Pacific region. Putin indicated that by 2027, Russia and the Far East would constitute 47 percent of global GDP. The Eastern Russian and the Asia-Pacific region economies are already growing at 5 percent per year, faster than their European Union competitors. The emphasis was on trade development through various organizations including BRICS rather than conflict. BRICS may be aiming at replacing dominance of the US dollar. Much of Putin’s address, however addressed the economic impact of “military operations” in Ukraine and NATO sanctions on the Russian economy.

Twelve-month YOY (year-over-year) Russian inflation peaked at 15 percent in July and is currently running nearly 14 percent twelve-month YOY with inflation in recent months dropping considerably. The overall inflation rate for 2022 should be close to 12 percent with monthly figures in the last quarter running about 5 percent YOY. Putin’s economists estimate the overall rate for 2023 should be between 4 to 5 percent. Putin also pointed out that US and EU inflation should be between 8 to 10 percent this year, but unlike Russia, their rates could be rising sharply in 2023 because of self-imposed energy shortages and 6 trillion dollars of deficit spending by the United States.

The high rates through July were largely because of temporary shortages due to EU sanctions. About 40 percent of Western brands have withdrawn from Russia, but some of these brands are still coming into Russia via other countries. Putin mentioned specifically that Apple iPhone 14 was already being advertised. Moreover, foreign dependence on imports has been reduced 20 percent by ramping up Russian suppliers.

Putin’s macroeconomic experts believed the Russian economy will have declined 2.2 percent for 2022, much less serious that predicted by European Union and American experts. [Reuters estimates a 2.9 percent decline in the Russian economy this year and had originally forecast a 5 percent decline as had 17 other analysts]

Putin also mentioned that unemployment has not been impacted by the sanctions and should remain about 3.0 percent in 2023. In addition, the Ruble is now the best performing currency in the world, although exports would be helped if it depreciated a bit.

Just hours after Putin’s speech, Russia’s Economy Minister, Maxim Reshetnikov, issued a new economic forecast predicting a 2.9 percent contraction of Russian GDP in 2022, and a slight contraction of 0.9 percent for 2023, owing to a high comparison base in first quarter 2022. Russia’s growth rate should be 3.5 percent beginning early in 2023 and continue in 2024. These estimates are substantial improvements from earlier this year at the beginning of sanctions.

Interest rates in Russia fluctuated wildly at the beginning of sanctions, running as high as 20 percent. The Central Bank of Russia steadily moved rates down to 8.0 percent in July 2022 and could lower it another 150 basis points if inflation continues to fall.

The substantial difference between the US and the EU currency and Russian currency is that the Russian currency has a strong commodity basis. This is mostly oil and gas but includes gold. Russia is also one of the world’s strongest agricultural exporters and has the largest timber reserves in the world. The Western nations have substantially weakened themselves by chasing false or highly speculative climate change theories with fiat dollars and other fiat currencies. EU and Biden Administration energy policies have made the world vulnerable to economic calamity and political bullying.

Putin emphatically stated that many EU and NATO sanctions had backfired. This view was endorsed in the speech of Li Zhanshu, Chairman of the Standing Committee of the National People’s Congress and third-ranking member of the Politburo of the Chinese Communist Party.

Putin said that Russia will not provide any gas or any other products to Europe or anyone else without being paid. Russia’s essential cutoff of Nordstream 1 and 2 gas pipelines to EU sanctioning supporters has already driven the spot price of natural gas to six times the US price. Some forecast that it could be 30 times higher by winter 2023.

Another lengthy issue discussed by Putin was the possibility of global food shortages caused by sanctions, which would hit third world nations in Africa harder than any. He tied this to a dispute with Ukraine on grain exports. Grain exportation is key to Ukrainian prosperity and world food supplies, but the Russians object to shipping grain to nations supporting sanctions against Russia.

It clear that both Russia and China believe economic self-sufficiency and self-determination are of paramount importance, and they are increasingly confident that that prosperity in the global marketplace can occur without dependence on the United States and European Union. They are seeking to develop a multipolar economic world. Prime Minister Narenda Modi of India stated specifically Indian intent to expand trade and development with Russia and partnering in Artic exploration, transportation, energy, and resource development. The presence and speech of Malaysian Prime Minister Ismail Sabri Yaakob was indicative of increasing orientation away from Western ties. Vietnam, which is now the second largest timber exporter in the world, has signed a free trade agreement with the EAEU (Eurasian Economic Union).

During his speech, Putin frequently referred to Vladivostok’s importance as the Eastern Terminus of the Trans-Siberian Railway, which puts Eastern products just five days from consumers in Moscow and St. Petersburg.

Putin shrugged off any concern that he or Russia had been hurt by the war in Ukraine, although it is obvious that the relatively small Russian Army with only a total of 500,000 soldiers and with only 200,000 of them deployed in the Ukrainian theater, have had much higher casualties than anticipated. I believe that is an absurd error to believe that an expeditionary army of less than 200,000 could occupy all of Ukraine. The initial positioning of columns north of Kyiv were doubtless an attempt to force a regime change by intimidation. Despite the high percentage of ethnic Russians in Ukraine, they were apparently not enthusiastic about doing a reverse-Maidan revolution. Besides, the Russian ethnics are concentrated in eastern and southern Ukraine. Ukraine’s military combined with larger reserves and local militia totals a much larger 700,000, but most of these are barely trained with little experience.

War News

Battle front reports on the Ukrainian counter offensive to regain lost territory vary widely, since reporters are now prohibited from contradicting Ukrainian official military news. The propaganda efforts are exploding using social and politically captive media. The Russians hold about 20 percent of Ukrainian territory but not much of it is very secure. According to official Ukrainian military sources, Ukrainian troops have been successful in advancing about 15 miles on a 12 mile front before the major city of Kharkiv (population 1.4 million) in northeastern Ukraine and have “liberated” nearly 30 small towns. As of this writing, this has apparently been accomplished by maneuvering a larger than expected Ukrainian force. Extensive combat engagement has not been reported.

The Russian Army is evacuating civilians from the larger towns of Kupyansk and Izium in front of them. Kharkiv is only 18 miles from the Russian border to the east. It looks like another huge artillery and rocket battle coming. So far in the war, the Russians have dominated in numbers, range, and firepower in artillery battles and inflicted severe casualties on the Ukrainian Army. However, if the Ukrainians can get enough M142 HIMARS (High Mobility Artillery Rocket Systems in place with trained crews (of 3), the tide could change. The latest M142 HIMARS carry six 227mm tube launched rockets on a truck mount. Depending on the ammunition size, their range (57 to 190 miles) and explosive impact can be devastating. The Ukrainians are reputed to have about 16 M142 “Shoot and Scoot” HIMARS, but more may be coming.

The Russians have a truck launched high mobility rocket system with 40 122mm tubes, the BM-21 Grad with a 24 mile range. Other mobile Russian field artillery can have ranges of 15 to 24 miles.

According to military consultant, retired US Army Colonel Douglas MacGregor, the Russian strategy is not to hold territory but the roads and to concentrate on destroying Ukrainian forces. Just hours ago, on September 10, the Russian Armed Forces launched their own counter-offensive on the northern bank of the Ingulets River east of Sniglevka from Kalininsk, and Bobrovy Kut. Also according to Macgregor, the Russians could resort to tactical nuclear weapons to prevent an overall Ukrainian victory.

Meanwhile autumn and winter cold in Germany and other Western European NATO members may determine the direction of the war in Ukraine. Energy and energy independence matter.

 

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