Russia-Ukraine War News: Latest Crimea, Nuclear Power Plant Updates

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As the country felt the brunt of the economic consequences of its war in Ukraine, the Russian economy shrank sharply in the second quarter, in what experts believe is the start of a multi-year decline.

The economy shrank by 4 percent from April to June compared to a year earlier, the Russian Statistics Agency said on Friday. It was the first quarterly gross domestic product report to fully capture the turnaround in the economy since the invasion of Ukraine in February. This was a sharp reversal from the first quarter, when the economy grew by 3.5 percent.

Western sanctions cut off half of Russia’s $600 billion emergency foreign exchange and gold reserves, imposed strict restrictions on transactions with Russian banks and reduced access to American technology, prompting hundreds of large Western companies to leave the country. .

But even as imports to Russia dried up and financial transactions were blocked, Obligation to repay the country’s foreign debtThe Russian economy was more resilient than some economists had initially expected, and Friday’s fall in GDP was not as sharp as some had expected, as rising global prices drained the country’s coffers of energy revenues.

However, analysts say the economic figure will grow sharply as Western countries increasingly move away from Russian oil and gas, key sources of export earnings.

“We thought it would be a deep dive this year, maybe even an exit later,” said Laura Solanko, a senior adviser at the Bank of Finland’s Institute for Economists on the Russian economy. Instead, he said, there is a mild economic downturn, but it will continue into next year, putting the economy in a shallow recession for two years.

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Russia, a $1.5 trillion economy before the start of the war, moved quickly to mitigate the impact of sanctions after the invasion. Central Bank It 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 restrictions on banks so loans could not be made. The government also increased social spending to support loans to households and businesses hit by economic sanctions.

The measures blunted the impact of some sanctions. And so on The ruble returned, Russia’s finances benefited from high oil prices.

“Russia Suffers Initial Permit Shock” And “relatively resilient so far,” said Dmitry Dolgin, chief economist covering Russia at Dutch bank ING. But he noted that if Russia cannot diversify its trade and finances, the economy will remain weak in the long run.

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

Michael S., a researcher at the Hoover Institution at Stanford University. Bernstam said the data released Friday was consistent with other reports from Russia. He also expects the economy to worsen in the second half of this year, and then again in 2023.

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As the war drags on, many countries and companies will permanently end ties with Russia and its domestic institutions. Businesses will have trouble getting replacement parts for Western-made machines, and software will need updates. Russian companies will have to reorganize their supply chains as they seize imports.

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

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

Reliance on Russian natural gas is also being reduced. In the final week of June, total EU gas imports from Russia fell 65 percent from a year earlier. Report of the European Central Bank. Some of these declines were forced on Europe as Russia cuts its gas supplies. But European countries have stepped up efforts to find alternative sources, for example, by rapidly developing infrastructure to accommodate additional imports. Liquefied natural gas.

The economy will suffer from “depletion of investment imports, the implementation of the EU oil embargo, greater financial pressure on households and increased dependence on the government”, while central bank and government liquidity capacity will suffer. And financial support is limited, ING’s Mr. Tolkien wrote.

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After the invasion of Ukraine, inflation soared in Russia as households scrambled for goods that were expected to be in short supply. Inflation was higher in July 15 percent, According to the Russian Central Bank. Already, however, there are signs that inflation is slowing, as a result The central bank has cut interest rates to 8 percentLess than before the war.

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Last month, the bank said business activity did not slow as much as expected, but the economic environment “remains challenging and continues to significantly constrain economic activity”.

The bank predicts the economy will shrink by 4 percent to 6 percent this year, much less than first expected soon after the war began. That 6 percent figure also matches recent ones Updated from 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 expects inflation to be between 12 percent and 15 percent by the end of this year.

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

“I don’t think the Russian economy is doing well at the moment,” Ms Solango said. But the idea that sanctions and the exodus of companies from Russia would cause the economy to collapse quickly was never realistic. “Economies don’t disappear,” he said.

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