Russia's Economy Suffers Slow Burn

Russia, one of the world's biggest oil suppliers, is earning less from selling its oil because of Western sanctions.

Russia's economy is facing a "slow burn" from sanctions and Putin's war spending.

That's narrowing Moscow’s trade surplus with the rest of the world since Russia buys more products from abroad, as reported by David McHugh for the Associated Press (AP).

But Russia's currency dipped too far for the Kremlin's liking — below 100 rubles to the dollar on August 14 — and prompted the central bank to carry out a big interest rate hike of 3.5 percentage points aimed at cooling local demand for imports.

The currency rose to 92 to the dollar in the days following the rate hike but has steadily slipped since; it traded at 96 to the dollar on Wednesday. Longer-term, however, Russia's economy is facing a "slow burn" from sanctions and Putin's war spending, said Robin Brooks, chief economist with the Institute of International Finance.

“The dilemma is, on the one hand, he has to spend a lot of money — fighting a war is super expensive," Brooks said.

"How do you square the circle between needing cash and hiking interest rates to keep the picture from spiraling out of control? In my view, there is no good solution.”

Hiking interest rates to boost the ruble “throttles the private economy — or the part of the economy that is not related to the war and the defense industries — so that enough resources are left over for the war to continue,” said Janis Kluge, a Russian economy expert at the German Institute for International and Security Affairs in Berlin.

“It's a clear prioritization of the government of this war over the welfare of households,” he said.

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