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Ruble continues decline: The head of the Russian central bank, Elvira Nabiullina, blamesthe deterioration in foreign trade conditions for the weak currency

Photo: Olga Maltseva / AFP

The ruble has once again lost significant value. Against the dollar, the Russian currency has fallen to a 16-month low. The reason for this is the increase in Russian military spending and a collapse in export revenues due to Western sanctions, as reported by the Financial Times.

In total, the Russian currency has already lost about 25 percent of its value this year. In early trading on Monday, the ruble fell below the 100 rubles per dollar mark. The decline more than offset the ruble's rise last year, when Russia's initial invasion of Ukraine was followed by a sharp rise in oil and gas prices.

The decline has accelerated in recent weeks, increasing economic pressure on Moscow after Western sanctions limited capital inflows and European countries decoupled from Russia's energy supplies. The increase in spending has caused annual imports to increase by 20 percent in the first half of this year.

"There is very little foreign currency coming into the country, so a shortage of foreign currency has formed," said Vladimir Milov, a former deputy energy minister who is now in exile against the Kremlin. "Imports have now returned to pre-war levels, only now we import all consumer goods and manufactured goods from China, Turkey, Central Asia and the Emirates, and no longer from the West. You still have to pay them in some currency, but nobody wants rubles."

The ruble has been weakening for months and has lost value once again due to the brief uprising of the Wagner mercenary group at the end of June. The weak Russian currency is fuelling fears among many Russians of further rising prices and restrictions in everyday life. Western sanctions and the cost of military action are now weighing heavily on the Russian economy.

Russian economy grows faster than expected

However, the Russian economy grew more strongly than expected in the spring. Gross domestic product (GDP) increased by 4.9 percent year-on-year in the second quarter, the national statistics office announced on Friday. Economists had expected growth of 3.9 percent on average. Earlier, the Russian economy contracted for four consecutive quarters year-on-year.

Growth is being supported primarily by government spending. Spending on the war against Ukraine has been expanded. This massively supports industrial production. Private consumption is boosted by increased social benefits and higher wages. The effect of Western sanctions could thus be mitigated.

"Gross domestic product could return to pre-war levels by the middle of next year," said Natalia Lavrova, chief economist at BCS Financial Group. It forecasts growth of two percent for 2023. Further problems could be caused by the worsening labor shortage for the Russian economy if President Vladimir Putin were to draft more troops.

In addition, foreign trade is slowing down economic development. The ruble has fallen to its lowest level since March 2022 against the dollar and the euro. The president of the central bank, Elvira Nabiullina (59), has blamed the deterioration of foreign trade conditions for the ruble's weakness. The price cap on crude oil imposed by Western industrialized countries has led to a continued decline in export earnings. This puts a strain on the trade balance.

mje/dpa,AFP