Impact Analysis of Trade Conflicts on Russian Businesses by the Central Bank
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Hold your horses! The economic landscape for Russia is getting a bit rocky, warns financial guru Kirill Tremasov at a conference hosted by "Vedomosti" titled "Economy in the Hot Seat". In his opinion, the storm could be brewing due to a potential devaluation of the Chinese currency, the yuan, which would boost Chinese goods' competitiveness on the Russian market, posing risks for domestic producers given the notable share of imports from the dragon nation.
However, Tremasov reiterated that Russia's exports mainly consist of raw materials, which aren't subject to yuan fluctuations. Yet, a global economic slowdown courtesy of trade wars might lower the demand for raw materials, resulting in a drop in export revenues and placing pressure on the national currency, potentially causing inflation and necessitating a tighter monetary policy.
On April 25, Elvira Nabullina, the head of the CB of Russia, highlighted the cooling global economy due to trade wars as one of the significant threats to the Russian economy. She expressed concerns about not only the potential surge in import tariffs but also the constant uncertainties they bring to the markets, making investment planning a nightmare. She also emphasized that the direct impact of trade wars on Russia is minimal.
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- #Russian Economy
- #Trade Wars
- #Yuan Devaluation
Now, brace yourselves! If trade wars lead to a prolonged drop in oil prices (projected below Russia's budgetary breakeven of $67–69/barrel for 2025), it could widen Russia's budget deficit, force ruble devaluation, and strain public finances. Higher U.S. interest rates due to trade war-induced inflation could compel Russia's Central Bank to maintain elevated borrowing costs, hampering investment and growth.
Moreover, a weaker yuan might reduce China's purchasing power for Russian oil, gas, and minerals, accounting for around 30% of state revenues. Coupled with slowdowns in global demand due to trade wars, this could result in lower export volumes and prices, further stretching Russia's trade surplus.
In this economic rollercoaster, the ruble depreciation (already weakened by oil price declines) could accelerate, increasing import inflation and capital flight. Trade wars could disrupt supply chains, exacerbating Russia's industrial stagnation. Meanwhile, a yuan devaluation might destabilize forex reserves for Russia, which holds yuan assets.
The Economic Ministry is concerned that trade wars could slash growth in half compared to 2024, with the specter of stagflation looming if low oil prices persist. A yuan devaluation would intensify these pressures by weakening Russia's largest trade partner – China. Watch out for more economic updates as the situation unfolds!
- Given the warning by financial guru Kirill Tremasov, potential devaluation of the Chinese yuan could boost Chinese goods' competitiveness and pose risks for domestic producers in the Russian industry, as the dragon nation is a notable source of imports.
- Despite the unease caused by yuan fluctuations not directly affecting Russia's exports of raw materials, a global economic slowdown due to trade wars could lower the demand for raw materials, eventually resulting in a drop in export revenues and placing pressure on the national currency.
- Elvira Nabullina, the head of the CB of Russia, expressed concerns about the potential surge in import tariffs and the uncertainties they bring, making investment planning difficult and posing risks for the finance and business sector.
- If trade wars lead to a prolonged drop in oil prices, it could widen Russia's budget deficit, force ruble devaluation, strain public finances, and reduce China's purchasing power for Russian oil, gas, and minerals - all of which accounting for around 30% of state revenues.
