©Sputnik / Maksim Blinov
The Russian economy has demonstrated its sustainability and resilience by weathering an unprecedented barrage of Western sanctions defying even the worst expectations, the head of the Bank of Russia, Elvira Nabiullina told the State Duma on Wednesday.
The level of pressure Russia had to face last year was so high no one could have potentially predicted it or prepared for it beforehand, the central bank head believes. The Russian people and industries demonstrated remarkable adaptability in this new reality, she said.
“No one could have prepared for this insane onslaught of sanctions,” Nabiullina said, adding that external conditions for the Russian economy had been worse than “even the most pessimistic scenario.” The “balanced and unwavering policy” the Russian financial authorities have stuck to in previous years as well as “crisis management experience” are what helped the government react to developments effectively, she explained.
The central bank head particularly praised the work of the nation’s banks that kept the financial sector “stable” and provided the nation with the necessary financial resources. She also described the government support measures as “adequate and timely,” adding that they helped the economy to “weather the sanctions storm.”
Russia has faced unprecedented sanctions imposed by the US and its allies last year over Moscow’s decision to launch a military operation in neighboring Ukraine. The Russian financial system and banks, as well as the aviation and space industries were among the first to be impacted.
The US and the EU have introduced a total of ten rounds of sanctions over roughly a year while the conflict between Moscow and Kiev has raged. In December, the EU, along with the G7 countries and Australia, introduced a price cap on Russian seaborne oil, set at $60 per barrel.
Many Western officials and media outlets predicted that the Russian economy would collapse under the pressure of sanctions and military expenditures, only to admit later that Moscow has managed to defy the doom and gloom forecasts.
Last August, Bloomberg and the Washington Post reported that the sanctions had failed to bring about the economic collapse that Western leaders had hoped for. In December 2022, President Putin said that Russia was outperforming many of the G20 nations despite sanctions.
In April, the World Bank admitted that the Russian economy was doing considerably better than expected. It changed its Russian GDP forecast by saying that it would likely fall by mere 0.2% in 2023 – up from the 3.3% contraction forecast in its January outlook.
Russia’s economy minister was even more optimistic in his April forecast, saying the nation’s GDP is expected to grow 2.8% by 2026.
US Economy Faces 'Stagflation' Thanks to Federal Reserve Interest Rate Hikes
The share collapse of retailer Bed Bath & Beyond is just the latest financial shock to hit the US in recent months. Todd “Bubba” Horwitz, chief market strategist at BubbaTrading.com, and David Tawil, founder of ProChain Capital, warned it was a sign of deeper problems.
The US is facing 'stagflation' thanks to interest rate hikes by the Federal Reserve, with more banks and other firms facing ruin.
Hot on the heels of the fluidity crisis at Silicon Valley Bank, stock in 52-year-old homewares retailer Bed Bath & Beyond crashed from around £20 per share a year ago to just £0.34 on Tuesday, prompting fears of looming bankruptcy.
Todd 'Bubba' Horwitz warned Sputnik that "we're in for a very, very rough ride here."
The US is "on the verge of stagflation, which means nobody makes any money and nobody has any jobs," he stressed. "How are you going to eat?"
"Inflation is well out of control, no matter what they say. The Federal Reserve is out of control," Horwitz said, because "you don't raise rates into a recession." The stock trader recalled the last period of stagflation in the late 1970s, when Jimmy Carter was president.
"You had super high interest rates, you had a lack of employment and the people that were working weren't making enough money to survive," Horwitz said. Key producers like farmers "weren't making any money because they couldn't charge enough."
The interest rate rise will have a knock-on effect on business as smaller banks find it harder to borrow from higher up the chain to grant credit to small firms. "What we've seen in this country over the last two years, coincidentally through President Biden's term, is the destruction of small business, small banks and entrepreneurship and capitalism," Horwitz charged. "When the cost of money is higher, you end up in a in a much bigger problem. And that's exactly what they built us."
Smaller, regional banks will not get the same "bailout privilege" granted by the federal government to big financial institutions, he cautioned. "They're not too big to fail. So many of them will fail."
David Tawil also told Sputnik that it was getting harder for businesses to borrow, because "the cost of credit or debt is going higher" with interest rates.
"In addition, banks have been under assault recently because of everything that's happened with respect to Silicon Valley Bank and Signature Bank," Tawil added. "regional banks have seen deposit outflows, and so they don't have as much money as they once did to go ahead and make make loans."
The cryptocurrency expert put the Bed, Bath and Beyond crash down to "financial shenanigans," but noted that the firm was "once was the leader in its class" until it lost out to hypermarkets and online retail giants.
"This sector has been cannibalized... by Wal-Mart, Target on the bricks and mortar side and then on the e-commerce side by the likes of Amazon," Tawil said. "They've been getting beaten up by much bigger, much more well-capitalized businesses that were profitable for a long time."
Why is UK inflation so high?
Britain's unwanted status as the only large advanced economy still to have double-digit inflation represents just one symptom of the serious economic malaise faced by the country.
Annual consumer price inflation (CPI) in Britain fell to 10.1% last month but defied forecasts for a bigger drop from February's 10.4%, according to data published on Wednesday.
The figures underscored the risk that Britain suffers high inflation for longer than other similar economies due to its reliance on natural gas for heating and electricity and the structure of state subsidies to smooth out price changes.
The Bank of England worries that high inflation might cause a lasting increase in wage demands and business pricing strategies, exacerbated by a post-pandemic reduction in the labour force and trade and jobs market problems caused by Brexit.
Five pounds ($6.21) in Britain today will only go as far as four pounds did in 2019 - a rate of inflation unmatched by other Western European countries over the same period.
"Inflation in the UK has risen further and stayed higher than elsewhere as the UK has experienced the worst of both worlds: a big energy shock like the euro zone and labour shortages - even worse than the U.S.," said Ruth Gregory, deputy chief UK economist at consultancy Capital Economics.
The International Monetary Fund last week forecast British inflation would average 6.8% this year, the highest of any major advanced economy, but not much above Germany's 6.2% forecast.
British consumer energy prices were 79% higher in March than their level two years earlier, the biggest increase in western Europe.
"The overarching difference that stands out is one of timing of energy support. It's clear this is having a massive impact," said Sandra Horsfield, an economist at Investec.
Differing methods of measuring energy bills and the array of national subsidies to help households cope with surging prices after Russia's invasion of Ukraine have made comparisons more difficult, but economists say there is no doubt that Britain has been hit hard.
Britain's high rate of energy inflation reflects its heavy reliance on gas for power generation and home heating as well as the poor energy efficiency of its housing stock.
Nonetheless, energy inflation in Britain is likely to follow the euro zone and fall sharply from April as the surge in prices seen last year starts to drop out of the annual comparison.
But domestically generated price pressures are likely to slow the pace of decline in headline inflation.
Prices of consumer services - watched closely by central bankers as an indicator of home-grown price pressures, often from wages - rose by 6.6% in the year to March, with only Austria in western Europe posting a higher rate.
While Britain typically has higher services inflation than the euro zone, that wedge has grown wider in recent months - with economists pointing to the labour market as a culprit.
A rise in early retirement, long-term illness and migration trends have depleted the pool of workers, meaning the recovery of Britain's labour market from the pandemic is trailing that of international peers.
"Supply is weak because of Brexit and workforce sickness. We do not expect those chronic supply problems to ease in the near-term," Bank of America economist Robert Wood said in a research note.
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