ALEXANDER KNOBEL: “EFFECT OF SANCTIONS PRESSURE WILL LAST LONGER THAN TWO YEARS”

There are at least four “knots of tension” in the Russian economy, CMASF analysts report in the new issue of “Thirteen Theses on the Economy,” on which the transition to either development or stagnation depends. For now, the pendulum can swing either way, as the Russian economy is currently in a state of “unstable equilibrium.”

Thus, one of the “knots of tension” is the imbalance in the international trade. As analysts remind, the immediate result of the “sanctions shock” last year was a contraction of both imports and exports of goods with imports declining significantly faster than exports. However, now exports of goods continue to decline at an accelerated rate both in value and physical terms, while imports following final demand began to grow.

The second “knot” is the “investment disbalance: lots of construction, not enough machinery.” Amid crisis conditions, construction activity was on the whole the most significant factor of support of the investment process. However, resources for the expansion of construction activity are limited due to both budget constraints and the demand of households for housing during the economic crisis. In these conditions a significant factor that could intensify the investment process could be the growth of investment in machinery and equipment. However, difficulties arise due to the suppression of the supply of components, as well as due to “the inevitable growth of uncertainty in the new conditions of “emergency” structural resetting of the economy.”

The third “knot” signifies the increase in the systemic burden on the budget and the efficiency of using the limited budget resources. Government spending should not just stimulate individual industries, but promote the development of “related businesses.” Finally, the fourth "knot" is the problem of low inflation sustainability. This year inflation is declining rapidly, but this is largely due to purely temporary factors, the analysts warned.

Alexander Knobel suggests that sanctions pressure may last much longer than two years and is fraught with both the accumulation of old problems and the emergence of new imbalances. “In the medium term, problems related to the replacement and servicing of foreign machinery and equipment will continue to accumulate, which will also have a negative impact on the overall efficiency of domestic production. The outflow of human capital in conditions of increased uncertainty is likely to persist,” the expert believes.