October 7, 2022

Russia-Ukraine War Live Updates: Latest Crimea News

5 min read


credit…Yuri Kochetkov/EPA, via Shutterstock

The Russian economy shrank sharply in the second quarter as the country felt the economic fallout from its war in Ukraine, which experts say is the start of a year-long recession.

The Russian statistics agency said on Friday that the economy shrank by 4 percent from April to June compared with a year earlier. This is the first quarterly gross domestic product report to fully capture the changes in the economy since the February invasion of Ukraine. That was a sharp reversal from the first quarter, when the economy grew 3.5 percent.

Western sanctions, which cut Russia off about half of its $600 billion in foreign currency and emergency gold reserves, imposed strict restrictions on transactions with Russian banks and reduced access to American technology. , forcing hundreds of major Western corporations to leave the country. .

But even as Russian imports dried up and financial transactions ceased, Forcing the country to repay its foreign debtsthe Russian economy proved more resilient than some economists had initially expected, and the drop in GDP reported on Friday was not as sharp as some had expected because of rising global prices. At the same time, the coffers of the country were filled with energy revenues.

However, analysts say the economic numbers will increase sharply as Western countries increasingly turn away from Russian oil and gas, which are key sources of export revenue.

“We thought it would take a deep dive this year and then out,” Laura Solanko, senior adviser at the Bank of Finland’s Institute for Economies in Transition, said of the Russian economy. Instead, there has been a mild economic slowdown, but it will continue into next year, making the economy the lowest recession in two years.

Russia, a $1.5 trillion economy before the war began, moved quickly in the days after the attack to ease the impact of the sanctions. Central Bank Doubled interest rates to 20 percent, severely restricted the flow of money out of the country, halted stock trading on the Moscow Exchange and loosened regulations on banks to prevent excessive lending. The government also increased social spending to support households and loans to businesses affected by the sanctions.

These measures reversed some of the effects of the sanctions. And as The ruble returned, Russia’s finances benefited from high oil prices.

“Russia Suffers Shock from Initial Sanctions” And “has been relatively flexible so far,” said Dmitry Dolgin, chief economist covering Russia at Dutch bank ING. But, he noted, unless Russia manages to diversify its trade and finances, the economy will be weak in the long run.

Retail trade fell by about 10 percent, while wholesale business activity fell by 15 percent, the statistics office said.

Michael S. Bernstam, a research fellow at Stanford University’s Hoover Institution, said the data released Friday is consistent with other reports from Russia. He also expects the economy to deteriorate in the second half of this year and again in 2023.

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As the war continues, many countries and companies will seek to permanently cut ties with Russia and its domestic companies. Businesses will have trouble getting replacement parts for Western-made machines, and software will need updates. Russian companies will need to reorganize their supply chains as imports increase.

Prospects for Russia’s energy industry, the heart of the country’s economy, are deteriorating. The United States and Britain have already banned Russian oil imports, and the country’s oil production is set to fall further early next year when the EU ban on imports takes full effect. According to the International Energy Agency, Russia will need to find customers for about 2.3 million barrels per day of crude and oil products, about 20 percent of its average output in 2022.

So far countries including India, China and Turkey have absorbed trade lost to Europe and the US, but it is unclear how many new buyers they might find.

Dependence on Russian natural gas is also being reduced. In the last week of June, total EU gas imports from Russia fell by 65 percent from a year earlier. A report by the European Central Bank. Some of these cuts have been forced on Europe as Russia cuts its gas supplies. But European countries have stepped up efforts to find alternative sources and, for example, are rapidly building infrastructure to accommodate additional imports. Liquefied natural gas.

The economy will suffer as “depletion of investment import inventories, the imposition of the EU oil embargo, greater financial pressure on households and their greater dependence on the state” will take their toll, while the central bank and government’s Financing capacity and financing are limited, ING’s Mr. Dolgin wrote.

credit…Yuri Kochetkov/EPA, via Shutterstock

In the immediate aftermath of the invasion of Ukraine, inflation soared in Russia as households scrambled for what they expected. Inflation was running higher in July. 15 percent, According to the Russian Central Bank. Already, though, there are signs that inflation is slowing, and as a result The central bank has reduced the interest rate to 8 percent.they were lower than before the war.

Last month, the bank said business activity had not slowed as much as expected, but that the economic environment was “challenging and significantly constraining economic activity.”

The bank forecasts that the economy will shrink by 4 percent to 6 percent this year, much less than it had originally expected since the start of the war. This 6 percent figure also matches the latest. Update from the International Monetary Fund.

The economy will contract deeply next year and not return to growth until 2025, the central bank said on Friday. The bank has predicted that inflation will remain at 12 percent to 15 percent by the end of the year.

In the coming months, supply chain issues will present challenges, as businesses constrained by sanctions try to change their supply chains to replenish stocks of finished and raw materials.

“I don’t think the Russian economy is doing well at the moment,” Ms Solanko said. But the idea that sanctions and the exodus of companies from Russia would quickly destroy the economy was never realistic. He said that economies do not end.

credit…Maxim Shipenkov/EPA, via Shutterstock



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