Sanctions-Proof Russia Helps Keep Economy Chugging Along

President Vladimir Putin’s efforts to protect Russia after past rounds of US sanctions are leaving the economy more insulated even as the threat of further penalties rattles markets this week.

Four years after the first major curbs were imposed over the Ukraine crisis, Russia’s economy is growing about as fast as the central bank thinks it can, thanks to policies that have allowed the currency to trade freely and reduced reliance on foreign capital, Bloomberg reported.

But that very self-restraint means growth is hardly enough to achieve Putin’s goals of dramatically raising living standards, with gross domestic product gaining less than forecast last quarter.

GDP added 1.8% last quarter from a year earlier, compared with an increase of 1.3% in the previous three months, the Federal Statistics Service said on Friday, citing preliminary data. That missed the 1.9% median of forecasts in a Bloomberg survey.

Facing a long-term drag as sanctions limit access to foreign technology and capital, Russia has countered by revamping its fiscal and monetary policy, channeling extra income into a sovereign wealth fund and unloading most of its holdings of US Treasuries. While domestic assets have suffered as sanctions damage sentiment, Russia is less vulnerable to outflows of foreign capital than its embattled peers such as Turkey.

“Russia is more prepared,” said Charles Robertson, global chief economist at Renaissance Capital. “They are trying to say that however bad it gets, the government isn’t going to be borrowing much money, it will not be requiring financing from abroad.”

The Bank of Russia said on Friday that it reduced planned foreign exchange purchases in response to the ruble’s volatility. The currency’s weakened about 5% against the dollar in three days, the second-worst performer among its 24 emerging-market peers tracked by Bloomberg.

Congress is weighing draft legislation proposing more sanctions that target Russia’s sovereign debt and its largest banks, as a response to alleged election meddling. The US state department also announced new restrictions to punish Putin’s government for the nerve-agent attack on a former spy and his daughter in the UK.

Putin is looking to jumpstart the economy so that it outpaces global expansion, which the International Monetary Fund predicts at 3.9% this year and next. But without structural reforms, Russia’s central bank has warned that medium-term GDP growth won’t exceed a range of 1.5% to 2%.