Top stories from the Russian press on Wednesday, May 18th, prepared by TASS

Izvestia: Russian ministry expects economy to suffer biggest drop in 13 years

The Russian Ministry of Economic Development has come up with a significantly worse macroeconomic forecast for 2022. According to it, GDP will drop by 7.8%, inflation will accelerate to 17.5%, unemployment will amount to 6.7%, and the population’s real income will fall by 6.8%. The yearly average exchange rate of the national currency is expected to be at 76.7 rubles to the dollar, while the average price for Urals oil is forecasted at $80.1 per barrel. As early as 2023, the majority of macroeconomic indicators will begin to recover while only GDP will demonstrate negative growth with a reduction of 0.7%.

Stanislav Murashov, a Raiffeisenbank analyst, finds the forecast realistic and points out that a lot will depend on whether Russia will manage to establish export-import supplies. "The level of inflation will depend on whether there will be a deficit of products, whether a parallel import will be launched or it won’t work out. Inflation around 17-18% is where we are heading now, given the current situation. As for the GDP, then everything will depend on how large our dependency is on intermediate consumption products, how strongly it will affect the potential of domestic production," the expert thinks.

According to him, the government’s support measures won’t become the main factor capable of saving the Russian economy from the crisis. "The current critical problem cannot be resolved with money. This is the difference between the current crisis and the COVID one. Back then it was possible to sort out the issues with budget funds. Now for us everything depends on export and import. We need imported products but they don’t want to deliver them to us. We have export products but they don’t want to buy them. This is the essence of the sanctions effect," the expert concluded.

That said, he stressed that Russia still has the supply of imported products. In the future, everything will depend on whether parallel imports will reach its full capacity.

Under the current conditions, the main support for the economy will come from the income on exports, Natalya Lavrova, a BCS Global Markets senior economist, thinks. According to her, if additional sanctions are introduced on raw materials exports, the economic indicators may turn out to be much worse. "We expect a turn towards positive dynamics in 2024, [when] GDP growth may surpass 3%," she noted.

Izvestia: How the EU's looming oil embargo may affect Russia’s budget

The attempt by EU countries to reject Russian energy products is "economic suicide," Russian President Vladimir Putin said during a meeting on the development of the oil industry on May 17. According to him, Brussels is making politically-motivated decisions which above all damage the EU’s own economy.

"The income from oil and gas makes up to 40% of the Russian budget. Out of this, more than 50% consist of exports to the EU. That said, the budget was calculated with oil prices at $62, far less than the current oil price of $113. So, at the end of the year, we can expect a surplus budget," Executive Director of the Capital Market Department at Univer Capital Artem Tuzov told Izvestia. "As a result, with such oil prices there is no need to worry about the Russian budget even if the EU completely rejects oil from Russia."

Currently, Brussels is trying to approve the sixth package of anti-Russian sanctions which involves the introduction of an oil embargo. However, Hungary has nixed the new restrictions for economic reasons because if they were introduced, Budapest would need new infrastructure and equipment for oil deliveries from other suppliers. However, Tuzov thinks that other countries will be able to convince Hungary to concur. "This is rather an issue of compensation," he stressed. "Russia is already selling oil to India and China. And the deliveries will expand. There will be a redistribution of routes. Other countries will deliver more oil to the EU, receiving oil from Russia instead."

Additionally, sanctions on supplying technologies in the oil and gas sphere won’t become a problem either. The expert pointed out that while Western technologies were more effective, there are domestic analogues which were being actively developed since 2014 when the first sanctions against Russia were introduced.

The share of the oil industry in Russia’s GDP is significant while oil revenues are one of its major balance sheet items, however Russia does not critically depend on it, Freedom Finance’s Leading Analyst Natalya Milchakova thinks. "Given the opportunity to reorient export flows to other directions (India, China), it is possible to confidently presume that Russia will withstand an oil embargo," the expert told Izvestia.

Kommersant: Is ‘neutral’ Switzerland leaning towards NATO

Switzerland, Europe’s leading neutral country, is heading towards a rapprochement with the US and NATO. Amid the events around Ukraine, the Swiss Federal Department of Defense was instructed to prepare a report on the options to bolster the country’s security, including activating cooperation with NATO. According to polls, more than half of Swiss residents are in favor of getting closer to NATO, while only a third of them approve of joining it.

Caroline de Gruyter, a columnist at Foreign Policy, noted that the very fact of this discussion is already revolutionary from the Swiss point of view. According to her, if the purely neutral Swiss decide to get closer to the Western camp, this indicates that the world is indeed changing.

Editor-in-Chief of the Russia in Global Affairs magazine Fyodor Lukyanov, took to his Telegram channel to comment on the situation, suggesting that this is not about Switzerland sensing a threat from Russia. "There is not enough imagination to seriously believe that Switzerland is afraid of Russia," he stated. "This is clearly something else. The West is being consolidated on the basis of a military bloc quite rapidly and all those who are part of the community need to at least indicate a movement in the designated direction," the expert concluded.

Rossiyskaya Gazeta: Europe may urgently need Nord Stream 2

Halting the transit of Russian gas via Poland and restricting its pumping through Ukraine may force the European Union to give in and swiftly launch at least one line of the Nord Stream 2 pipeline. Currently, the total capacity of Russian gas deliveries to the West is about 90 bln cubic meters annually which is less than what was exported to the EU in 2021 by more than a third.

If Ukraine stops the transit, the European market will lose up to 110 mln cubic meters of Russian gas per day, according to Deputy Director of the National Energy Security Fund Alexey Grivach. It is impossible to compensate it along other functioning routes given the sanctions against the Yamal-Europe pipeline, the only solution is to launch Nord Stream 2. According to the expert, Germany is unlikely to do so at this time even if it freezes. Yet, this is quite plausible should the situation in Ukraine change.

According to Deputy Director General of the National Energy Institute Alexander Frolov, in order to launch Nord Stream 2, European leaders need to get to the peak of the energy crisis which will bring unacceptable losses to the economy of Germany and other European countries. They also need to find the resolve to begin fighting this crisis instead of blaming Russia for everything, according to the expert.

The gas deficit in Europe is also exacerbated by the necessity to fill up underground storage facilities before the heating season. According to Gazprom, the EU still has to pump 49 bln cubic meters of gas. In order to do so by October 1, Europe needs to pump 350 mln cubic meters daily to the tune of about $350 mln, not counting the expenses for the storage facilities’ services, which is a serious task as far as the budget and finances are concerned, Grivach explained. This is enabled by "killing" demand for gas in Europe due to high prices, yet any restrictions on deliveries will slow the process down. Additionally, companies will need help from the national government or the European Commission to compensate for the colossal cash deficiency, the expert added.

That said, Frolov noted that underground storage facilities issue is not as significant as the EU tries to present it. These storage facilities are designated to flatten the peaks of consumption. Thus, the adequacy of supplies is derived from demand and nobody knows what it will be like during the heating season, the expert specified.

Rossiyskaya Gazeta: Russian manufacturers begin sales of Coke and Pepsi substitutes

Several Russian manufacturers immediately announced the launch of Coca-Cola and Pepsi equivalents. Experts think that nowadays domestic business stands a good chance of getting it on to store shelves which until now were dominated by Western brands. Yet even if the quality of Russian drinks is better and the price is more affordable, manufacturers will have to pour a lot of money into promoting the new products on the market.

Director of the Research Institute of the Brewing, Non-Alcoholic and Winemaking Industry Konstantin Kobelev thinks that Russia will definitely find replacements for the exiting Western brands. There is Russia’s own raw materials base to produce non-alcoholic products (including infusions, extracts, juices, flavoring agents, and so on).

Russian manufacturers have a good chance to scoop up the market’s share from the Western companies although it won’t be easy, according to RusBrand’s Executive Director Alexey Popovichev. Russia has many fans of certain brands who are not ready for the switch. Additionally, while the products themselves are of high quality, Russian enterprises always had trouble promoting them. The expert thinks that now is the time to take advantage of the absence of Western commercials on TV.

Chairman of the Consumers Union of Russia Pyotr Shelishch concurs since the Western companies invested billions of dollars in promotion. Additionally, it is necessary to keep in mind the trend towards a healthy lifestyle - many foreign brands had low-sugar or sugarless drinks, the expert added.

Russian manufacturers who decided to replace Coca-Cola and Pepsi may have issues with registering their trademarks, a member of the Association of Lawyers of Russia Maria Spiridonova thinks. She reiterated that they may be denied state registration if their trademark is identical or similar to the point of possible confusion with the trademark name or brand protected in Russia if it had been registered earlier.