Central Bank explains impact of sanctions on Russia’s exports

The downward trend in export volumes continues. The Bank of Russia experts predicted two possible future scenarios at their key rate discussion in February: exports will either recover or they will be partially re-channeled into the domestic market.

Russia’s exports fell significantly in 2023, with fourth quarter supplies to foreign markets “noticeably lower” than the Central Bank’s October forecast. The regulator explained the reasons for the decline and made projections for the future in a Summary of the Key Rate Discussion related to the Board of Directors’ decision, published for the first time on February 27.

The Central Bank sees two possible scenarios regarding Russia’s exports.

According to the first scenario, the current decline in exports is temporary and has to do with the market’s adjustment to changing conditions, including payment and logistics challenges. Over time, as operators adapt to these restrictions, exports will recover, driven by the global economic growth, the Central Bank said.

The other possible explanation is that exports are contracting in response to more profound structural changes, in which case the near-term recovery will be limited. Under the second scenario, part of formerly exported products will be redirected to the domestic market, which can be a disinflationary factor due to an increase in supply.

“Manufacturers redirecting their products from foreign markets to domestic consumers is one of the typical manifestations of the ongoing structural transformation of the economy,” the Central Bank said.

The reduction in exports from Russia is a completely natural consequence of the sanctions that the collective West has imposed on our country, independent financial analyst Boris Usherovich said. Logistics is changing, payment constraints are growing. These changes are not something that foreign trade participants can quickly adapt to, the expert emphasizes.

“The Russian Federation may be ready to buy a wide range of foreign goods and technologies using so-called parallel import mechanisms, but global markets are unlikely to want as many “parallel exports,” he explains to Invest Foresight. “In my estimation, Russia’s exports will not see significant recovery until the West begins to ease the sanctions policy. Therefore, I’d say the second scenario described by the Central Bank seems more realistic – a limited recovery in the near term and a turn to the domestic market, which is actually quite extensive.”

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