(Bloomberg) – Senior officials told the Kremlin’s annual economic showcase that Russia is weathering sanctions better than initially feared, touting a new model focused on domestic production as the country faces international isolation unprecedented following its invasion of Ukraine.
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Attendance at this year’s St. Petersburg International Economic Forum was down sharply from previous ones, which attracted top global leaders and major global corporations.
This year, visitors include officials from the Middle East and Asia, as well as representatives of the Taliban in Afghanistan. Even many Russian attendees were reluctant to make the showy presentations of years past, fearing it would turn them into targets for more sanctions from the United States and its allies. Many panelists have already been affected.
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Even in the much smaller than usual room, the mood was optimistic during Thursday’s main economic session, during which no mention was made of Ukraine or the war. The government will revise down its forecast for a contraction in gross domestic product this year, Economy Minister Maxim Reshetnikov said.
“We see that the measures that are taken so intensively are having a result,” he said, without specifying the new figure. At present, the authorities are forecasting a drop of 7.8%.
But Reshetnikov warned that unlike past recessions, where the recovery put the economy back on its previous path, this time will be different. “Our goal is to buy time to allow for a structural overhaul,” he said.
Russia needs to rethink its focus on exports, which have long been an engine of growth and a source of hard currency, said central banker Elvira Nabiullina. With sanctions driving down the prices of the country’s main products and raising the cost of imports, the industry must focus on the domestic market, she said.
Finance Minister Anton Siluanov lamented that “the globalization we were moving towards before has not turned out to be so comfortable for countries, so to speak”.
This sparked a note of realism from the panel moderator, who pointed out that the country’s biggest automaker had just announced a new post-sanctions model of the Lada stripped of many key features.
“I don’t want to spend time listing all the things this car won’t have, but there’s one feat it definitely will have: this stripped down version will cost more than the fully loaded version,” said Andrei Makarov , a ruling party legislator. “Does this mean that our import substitution will continue on the principle of lower quality for more money?”
Kremlin economic aide Maxim Oreshkin responded, conceding that Russia’s “economic development machine” had lost a few pieces – high-tech items, funding, etc.
But he promised a new strategy for his auto sector would be discussed later Thursday in a meeting with President Vladimir Putin. Car sales have plummeted 80% and nearly every car factory in the country is closed due to sanctions and parts shortages.
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