UN reports on the success of the Russian economy

The UN has acknowledged that Russia's economy has experienced growth, which is an accomplishment that few G20 countries have attained. Despite the sanctions, Russia's overall exports have remained relatively unchanged, oil and gas revenues are now experiencing monthly growth. However, it is still premature for the country to relax as there are obstacles that need to be overcome
The UN has identified Russia as one of the G20 countries expected to see enhanced economic growth in 2023. Among the G20 nations, only Brazil, China, Japan and Mexico are still expected to experience economic growth. According to the United Nations Conference on Trade and Development (UNCTAD) report, Russia's GDP is expected to grow by 2.2% and 2% in 2023 and 2024, respectively.

Despite the sanctions imposed against Russia by the US/EU/G7 since the beginning of the SMO in the Ukraine , the total volume of Russian oil and gas exports - the primary source of the country's foreign currency - have remained largely unchanged. Although gas exports saw a decline of 32% in 2022, oil exports have remained stable at 3 million barrels per day. Notably, oil constitutes 75% of all energy exports. Plus Russia has redirected its trade routes, shifting from the EU and the US to India and China.

However, the West has managed to decrease Russian export revenues, resulting in a 47% drop in the first half of 2023 according to the UN. As a response, Russia collaborated with the Saudis within OPEC+ to reduce production and exports,this move has led to an increase in prices. The UN report stated that it remains to be seen if this will yield the desired outcome.
"The proportion of Russian oil and petroleum products in the global market is significant, making it difficult to isolatethem without causing serious economic damage on the rest of the world. The impact of sanctions, specifically the oil price ceiling and export restrictions on technological products to Russia, have not been significant so far. It is because the Russian economy has adapted to these restrictions by redirecting its foreign trade and financial flows through third party countries," according to Olga Belenkaya, who heads the macroeconomic analysis department at "Finam."

The economist observed that domestic demand has exceeded expectations, with both in household consumption and investment growing rapidly. "Domestic demand has rebounded to the level of the fourth quarter of 2021, primarily due to substantial government spending, budgetary payments to citizens, preferential lending initiatives, and a swift resumption of imports," according to Belenkaya.
None of the OPEC+ countries have exhibited negative economic dynamics. The increase in oil prices only enhances theirs and Russia's position.

The pivot away from the Weste has proven to be the 'correct' for strategy Russia, with China, and India,receiving significant quantities of cheap oil. Combined with rising oil and gas imports, both the Chinese and Indian car production records have been updated. There is unparalleled resource optimisation unfolding in Russia. Moreover, alongside income from oil and gas, there was an increase in income from grain exports. According to Alexander Timofeev, Ph. D., Associate Professor at the Department of Informatics at the Russian Economic University,. the transfer of payments into national currencies with the rising economies of the BRICS countries also bolstered Russia's economy. .

Ministry of Finance data has revealed that Russia's oil and gas revenues have begun to increase after the surge in the price of oil. Even export volumes have risen, averaging 3.3 million barrels of oil per day in the last month. The price of the Russian Urals grade has surpassed $80 per barrel, way above the G7 countries' price ceiling of $60 per barrel.

In September, oil and gas revenues of the Russian Federation totalled 739.9 billion rubles, which is a 15.12% increase from August. Additional oil and gas budget revenues for September amounted to nearly 280 billion rubles.

In October, the Ministry of Finance anticipates a near doubling of extra revenue from oil and gas - 513.48 billion rubles.

Almost 400 billion rubles of this total have been earmarked for purchasing gold and foreign currency.

Nevertheless, the country cannot afford to be complacent due to ongoing economic risks and challenges.

"Economic growth is intricately linked to fiscal stimulus and increased government spending. Therefore, any attempts to reduce them, starting from the second half of 2023, will undoubtedly restrict economic expansion. Moreover, the delayed effect of fiscal stimulus exacerbates inflation and its influence on devaluation, ultimately constraining real growth. At the very least, monetary policy will need to be tightened." "A prolonged period of the Central Bank's monetary policy will significantly reducep the economic growth forecast in 2024, from 0.5-2.5% to 0.5-1.5%. Additionally, in 2025, the forecast will likely reduce from 1.5-2.5% to 1-2%," cautions Evgeniy Mironyuk, a stock market analyst at BCS World of Investments.
The Central Bank must combat the depreciating ruble and escalating inflation by increasing rates. "Russia was compelled to shift in its trading from strong currencies such as the dollar and euro to the currencies of amicable nations and rubles. The percentage of ruble in exports jumped from 13% in February 2022 to 42% by middle of this year. Nevertheless, the share of the ruble in imports remains nearly constant, approximately 30%." The hard currency received in Russia is insufficient to cover imports and meet the demands of residents, businesses and non-residents. This exerts pressure on the ruble exchange rate and adversely affects inflation, as well as the purchasing power of ruble income and savings of the population, explains Mironyuk.

Additionally, export earnings are in jeopardy, as oil prices may see unexpected developments this year. The fourth quarter could see a weakening in demand for oil, which may lead to lowered prices. Oksana Lukicheva, an analyst at Finam Financial Group, has identified several factors contributing to the decline in oil consumption. To begin with, the fourth quarter is typically weak in terms of oil demand, and this year will be no exception. Moreover, high prices are adversely affecting fuel demand, which is already evident. Finally, the high driving season in the Northern Hemisphere has come to an end, and the autumn maintenance season at refineries is underway.

Finally, China can decrease its energy consumption, as it is the largest worldwide consumer. "China has acknowledged the pent-up demand accumulated during the pandemic. Furthermore, there is speculation that China put off creating a strategic reserve after the price hike in July-August, and Chinese processors lowered imports, sourcing requirements from reserves. In September, China decreased oil imports by 7.7% (information from Chinese customs)," Lukicheva reports.

All these factors may result in a reduction of global oil consumption by 600 thousand barrels per day in Q4 of 2023. This negative point impacts the prices, which clarifies OPEC+'s decision to preserve production restrictions during a meeting held on October 4.

This negative point impacts the prices, which clarifies OPEC+'s decision to preserve production restrictions during a meeting held on October 4. This negative point impacts the prices, which clarifies OPEC+'s decision to preserve production restrictions during a meeting held on October 4. This is a result of their fear of decreased oil demand. Russia and Saudi Arabia have verified their limitations and may potentially escalate cuts in production and export for November.

"The world is currently experiencing rapid development, with a clear indication of increased risks of recession and a potential need for adjustment in the oil market balance," cautions Lukicheva. Already, the price of oil has dropped from £91 to £84 per barrel and may continue stay at around £81-£85 per barrel if demand reduces even further, concludes the analyst