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Putin’s war puts Russia’s economy back four years in one quarter.News of the Russian-Ukrainian War

A wave of international sanctions following Moscow’s invasion of Ukraine disrupted Russian trade and paralyzed various industries.

To bloomberg

President Vladimir Putin’s invasion of Ukraine put the Russian economy on track for one of the longest recessions in history, if not as much as initially feared, with a four-year recession in the first quarter after the attack. .

After accelerating at the beginning of 2022, the Russian economy turned to contraction in the second quarter. Friday’s data showed GDP contracted for the first time in over a year, but fell 4% for the year, beating expectations.

According to Bloomberg Economics, GDP is now about the same size as it was in 2018, given the lost production.

The impact of international sanctions over the war has disrupted trade, paralyzed industries such as auto manufacturing, and boosted consumer spending. So far, the economic downturn has not been as sharp as initially expected, but the central bank expects the downturn to worsen in the coming quarters and reach a low point in the first half of next year.

“The economy will move towards a new long-term equilibrium,” said Alexei Zabotkin, deputy governor of the Russian central bank, at a news conference in Moscow. “As the economy undergoes restructuring, its growth will resume.”

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Bank of Russia acted to contain market turmoil and ruble with capital controls and a sharp rise in interest rates. Enough calmness has returned to reverse many of these measures.

Fiscal stimulus and repeated rounds of monetary easing in recent months are also starting to take effect, slowing the impact of international sanctions. Oil drilling is picking up and household spending is showing signs of stabilizing.

“The crisis is progressing very smoothly,” said Yevgeny Suvorov, chief Russia economist at Centro Credit Bank.

On Friday, the central bank released its draft policy outlook for the next three years, forecasting that it will take until 2025 for the economy to return to its potential growth rate of 1.5% to 2.5%. The bank’s forecasts for 2022-2024 remain unchanged, with GDP projected to contract by 4% to 6% and 1% to 4% this year and next year, respectively.

The report also included a so-called risk scenario of further deterioration in global economic conditions and further sanctions on Russian exports. If so, the Russian economy’s downturn next year could be worse than during the global financial crisis in 2009, and growth will resume in 2025.

The official response so far has secured a soft landing for the economy, which analysts had once expected to contract 10% in the second quarter. Economists at banks including JPMorgan Chase & Co. and Citigroup have since improved their outlook and now expect annual output to fall by just 3.5%.

Still, the Bank of Russia expects GDP to contract by 7% this quarter and could contract further in the last three months of the year.

The stalemate over energy shipments to Europe poses new risks to the economy. According to the International Energy Agency, Russian crude oil production is expected to fall by about 20% by early next year.

“The 2022 recession will not be as severe as expected in April,” the central bank said in its monetary policy report this month. “At the same time, the impact of supply shocks could grow further over time.”

To contact the editor responsible for this article:
Benjamin Harvey (bharvey11@bloomberg.net)

https://www.aljazeera.com/economy/2022/8/12/putinswar-sets-russian-economy-back-4-years-in-single-quarter Putin’s war puts Russia’s economy back four years in one quarter.News of the Russian-Ukrainian War

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