Filenews 16 May 2022
By Derek Saul
Vladimir Putin presented an enviable picture of the Russian economy last Thursday, boasting of the recent rouble rally and the country's inflation compared to its "rivals". Putin's messages were – at the very least – misleading, as the Russian economy is showing clear signs of recession after being isolated from much of the world's markets in retaliation for the invasion of Ukraine.
Putin stressed that the rouble is "strengthening" and "probably" is the currency with the "greatest momentum" at the moment in the world, state news agency RIA Novosti reported.
Putin is not lying about the Russian currency's exchange rate: the rouble has climbed more than 11% against the U.S. dollar since the start of the year, marking the biggest rise compared to the other 30 currencies that Bloomberg watches.
However, market experts and Western governments argue that the performance of the rouble is due to the fact that Moscow artificially supports the currency through capital controls and point out that its strengthening does not reflect the true picture of the Russian economy (the IMF and the World Bank predict that Russia's GDP will shrink by 8.5% and 11% this year, respectively).
In his speech last Thursday, Putin stressed that in the last week prices in Russia have risen marginally, by just 0.1%, and – according to the RIA and the state-run TASS news agency – he noted that the deterioration of inflation in Europe is heavy, since in some countries it reaches 20%.
This claim is completely misleading: Russian inflation stood at 17.83% for April on an annual basis, according to the Russian central bank, far exceeding 7.5% of inflation in the Eurozone for the same month.
Craig Erlam, an analyst at OANDA, told Deutsche Welle: "The movements of the Russian currency are not representative of Russia's economic fundamentals. Most of the time, these are indeed reflected in the currency. But capital controls —once in place — once they come into place — blur the picture." US Secretary of State Anthony Blinken said last month that the rouble is under "great manipulation".
The rouble collapsed in the first days of the Russian invasion of Ukraine, reaching a historic low (139 roubles per one dollar) in early March, only to recover afterwards. On Friday it touched the level of 62,625 roubles against the dollar, the highest since February 5, 2020. In addition to the rally in global energy prices, the recovery can also be attributed to the policies of Russia's central bank that incentivize citizens to keep their roubles, the ban on the sale of foreign exchange as well as the increase in the interest rate to 20%.
In addition, car sales in April in Russia fell dramatically compared to April 2021, according to data from the Association of European Businesses. The data on car sales gives an insight into how strong the impact of the departure of hundreds of foreign manufacturing companies from Russia is, although Putin noted – according to the TASS – that Russian manufacturers are "replacing" the multinationals that left Russia in protest of the invasion of Ukraine.
The euro is at its lowest level in 5 years against the dollar at 1.04, marking a dip of 14% since the start of the year. The climate of uncertainty on the continent due to the war in Ukraine, with energy prices rising as Europe tries to gradually become independent of Russian oil and gas, is pushing down the euro.
Source: Forbes
