Russia's monetary flood is turning into a trickle as energy revenues drop

Russia’s monetary flood is turning into a trickle as energy revenues drop

The current account surplus — roughly the difference between exports and imports — fell to $5.4 billion in the fourth quarter from $76.7 billion in the same period in 2022, according to preliminary central bank data published on Tuesday. It is the smallest surplus since the third quarter of 2020.

Falling revenues from energy exports have slashed revenues that have provided the Kremlin with an important source of hard currency since Russia’s invasion of Ukraine in February 2022. With the economy hit by unprecedented sanctions in response to the war, plunging crude prices and restricted gas flows have combined Europe with a boom in imports to tighten The windfall amounted to $233 billion in 2022.

The central bank is still expect The current account surplus reached $47 billion this year and $38 billion in 2024. On Tuesday, it said in a statement that the deterioration of Russia’s trade balance was caused by lower export volumes as well as lower prices for energy exports, mainly.

The bank said the current account balance turned negative in June due to seasonal factors and dividend payments by Russian companies amid an unfavorable market environment.

Russia is experiencing its smallest current account surplus in two years |  The surplus shrunk dramatically as export earnings fell

Goldman Sachs Group Inc. The $25 billion decline in the price of oil in the second quarter off the year-over-year decline in the surplus, while increased imports are likely to reduce it by a similar margin. According to one report, much of the remainder was due to lower gas export volumes and prices.

“We believe that the main drivers of the current account will continue to be domestic demand growth, which is rising rapidly due to the significant downturn in fiscal policy and oil prices,” said analysts at Goldman including Clemens Graf.

What does Bloomberg Economics say…

“Russia’s external balance continues to deteriorate with the impact of energy sanctions and loose domestic policies driving import demand higher. A weaker trade balance means that the Russian ruble will also remain weak, by our estimates, pushing inflation to close to 5% this year. We expect it to contract. The current account surplus in 2023 will be less than a fifth of last year’s $233 billion.The tight external balance will mean that Russia’s ability to direct capital to acquire the assets and infrastructure it needs to avoid sanctions will also diminish.”

Alexander Isakov, Russian economist.

The deterioration in external finances is keeping the Russian currency under pressure and increasing its volatility.

The ruble lost 13% against the dollar in the second quarter, the worst performance in emerging markets after the Argentine peso and the Turkish lira. One-month implied volatility, a measure of currency turmoil, is the highest in the world.

“Because of the sanctions, the ruble exchange rate now reflects only current account inflows,” Ulrich Luchtmann, head of currency strategy at Commerzbank AG, said in a report. Hence, the ruble is likely to depreciate in the medium term due to a declining current account surplus.

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