After four rounds of Western sanctions, Russia’s economy begins to crack

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The European Union and the United States, their allies, the whole Western camp – with a few notable exceptions such as Hungary

– have already fired four rounds of increasingly harsh sanctions on Russia’s economic apparatus since the invasion of Ukraine and, finally, cracks are beginning to appear in the walls of the beleaguered Kremlin fortress, according to data released Wednesday.

1. The “imminent” payment default

Among the first sanctions, many multinationals had decided to close shop in Russia, announcements made with great fanfare but so far without great measurable effects on the real economy. And this apparent insensitivity was not due to the maintenance of wages during the lockout because the foreign groups which set it up, like McDonald’s for its 62,000 temporarily unemployed employees, are extremely rare.

But finally after several weeks of salvoes of sanctions going crescendo since the beginning of the Russian offensive in Ukraine, clear signs appear.

This very Wednesday, the Russian Ministry of Finance announced that it had settled in rubles a debt of nearly 650 million dollars because a foreign bank refused to make the payment in dollars.

The United States tries to push Russia into default

Indeed, while the US Treasury has so far left Russia the possibility of using its reserves of foreign currencies – and therefore of dollars – stored in US banks to pay its foreign debts denominated in dollars, it has tightened this week the sanctions, after the atrocities of Boutcha, by no longer accepting dollars stored by Moscow in American banks.Russia now has as it should

a grace period of 30 days before the payment default is formally pronounced by the rating agencies. The latter have already warned of an “imminent” default by Russia.

For several weeks, Russia had succeeded in averting the danger of a default, but this time it is over. The proof that the situation is critical: the Russian Ministry of Finance responded today by warning the creditors of “hostile countries” (see Russian gas customers for example): the money will be reimbursed to them in rubles deposited into a Russian account, and they will only be able to convert these rubles on the condition that Russian funds abroad are released. The Kremlin spokesman also gave voice:“There is no basis for a real fault” said Dmitri Peskov, questioned during a press briefing on Wednesday, affirming that

“Russia has all the necessary resources to honor its debts”.Admittedly, the master of the Kremlin had himself warned of the invicibility of the Russian economy on March 16 ( “Yes, it’s not easy for us at the moment”, but “it is not possible to organize a blitzkrieg

against Russia”), but today nothing is less certain.

Indeed, according to Blue Bay Asset analyst Timothy Ash, contacted by AFP, “it is difficult for Russia to avoid a sovereign default”:

“A default is a default. The markets will judge it that way. Investors have not been paid. They will remember it” (…) A default may not immediately collapse the Russian markets and economy , but will have devastating consequences in the longer term”, specified this economist, who foresees “an impact on investment, growth, standard of living” among others.

He concluded:

“Putin has impoverished Russia for years. »

2. The desperate Russian automobile: sales plunge by -62.9%

Another striking figure, sales of new cars have collapsed today by 62.9% in March over one year, which testifies to a sector at bay, the countries of the Western camp having in particular banned exports to Russia from detached pieces.

Many producers have also announced that they will stop selling components or cars to Russia, like Audi, Honda, Jaguar or Porsche. Others have announced the cessation of production, such as Renault, BMW, Ford, Hyundai, Mercedes, Volkswagen or Volvo.

The factories of Avtovaz (Renault-Nissan group), the leading car producer in Russia, employing tens of thousands of people, are almost at a standstill due to a shortage of imported components.

According to Avtostat data cited by Kommersant, new car prices rose an average of 40% in March, and up to 60% for high-end cars, the supply of which is limited by logistical problems as well. than by penalties.

3. Inflation is soaring, but the real crisis won’t happen until this summer

March inflation figures are due Wednesday evening and are expected to break records.

Alexeï Vedev, associate researcher at the Gaidar Institute of Ranepa University in Moscow, estimates that it will be around 20% annually, after having exceeded 9% in February over one year.

Sugar, butter, paper … hyperinflation threatens in Russia, the Kremlin denies any shortage

“It was a month of panic among consumers”, who rushed to products which they foresee the disappearance, he believes. “As the situation stabilizes, the objective processes at work will become clearer.” And according to Andrei Yakovlev of the Moscow Higher School of Economics, the real crisis will not reach the real economy until this summer or autumn: “in May, a large number of companies are likely to stop”

lack of imported components, particularly in the automotive industry which employs hundreds of thousands of people.

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BOX

Hungary lets go of the EU, saying it is ready to pay for Russian gas in rubles First countries to break the ranks of European unity while the

26 EU member states are seeking by all means to put pressure on Russia to stop the invasion of Ukraine, Hungary said it was ready on Wednesday to pay for Russian gas in rubles if necessary.

“We don’t see a problem in paying in rubles. If that’s what the Russians want, we’ll pay in rubles,” Prime Minister Viktor Orban told a news conference in Budapest.

Moscow has threatened to cut off gas supplies to “unfriendly” countries that refuse to pay in rubles, a move that would mainly affect the heavily dependent EU.

The European Commission proposed Tuesday to the Twenty-Seven to toughen the sanctions against Moscow, by stopping their purchases of Russian coal, which represent 45% of imports from the EU, and by closing European ports to Russian ships. But a possible embargo on Russian oil (25% of European oil purchases) and Russian gas (45% of EU gas imports) is the subject of bitter discussions between the Member States.

If Budapest is the first to drop the Union, Berlin and Vienna, extremely dependent on Russian gas supplies have already publicly expressed their reluctance.