Russia’s economy shrank by four percent in the second quarter of 2022, the first full quarter since the start of the invasion of Ukraine, the Reuters agency reported on Friday, citing data from the Russian federal statistical service Rosstat. This is a strong slump after the first quarter, when the Russian economy grew by 3.5 percent.
According to observers, the sharp contraction of the Russian economy is a sign that unprecedented sanctions imposed by the European Union, the US and other countries supporting Ukraine are beginning to be felt, Reuters points out.
Russia. The economy has plunged into recession
The economy plunged into recession after the Kremlin authorities decided to send its armed forces to Ukraine on February 24, triggering wide-ranging Western sanctions on the energy and financial sectors, including cutting off Russia from about half of its $ 600 billion in foreign exchange and gold reserves. The war also prompted many Western companies to withdraw from the domestic market, reminds Reuters.
However, as the American “The New York Times” points out in its analysis, even when imports to Russia froze and financial transactions were blocked, which resulted in the country failing to repay, for the first time since the Bolshevik Revolution, its foreign debt, the Russian economy showed more resilient than some economists initially expected, and the decline in GDP on Friday was not as severe as expected. As the NYT explains, the losses were partly offset by revenues from energy exports as their prices rose around the world.
But analysts quoted by the US daily say the economic losses will only increase as Western countries increasingly turn their backs on Russian oil and gas, which are a key source of export earnings.
As the war continues, the NYT writes, many countries and companies will seek to end relations permanently with Russia and its companies. Russian economic entities will have problems obtaining spare parts for machines manufactured in the West, as well as updating software developed by Western companies. Russian companies will have to reorganize their supply chains as imports are difficult.
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Worse prospects for the energy industry
The outlook for the Russian energy industry, which is of key importance to the country’s economy, is also deteriorating. United States and the United Kingdom have already banned the import of Russian oil, and the situation will worsen even more at the beginning of next year, when the full European Union ban on oil imports comes into force. According to data from the International Energy Agency, Russia would have to find customers for about 2.3 million barrels of crude oil and petroleum products per day, which is about 20 percent of its average production in 2022.
Until now, countries like IndiaChina i Turkey have taken over some of the lost trade with Europe and the US, but it is unclear how many new buyers will be found.
The dependence on Russian natural gas is also decreasing. In the last week of June, compared to the previous year, the total gas imports from Russia to the European Union fell by 65%. – according to the report of the European Central Bank. Some of these declines have been forced by Russia, which has cut its gas supplies. However, European countries have stepped up efforts to find alternative sources and, for example, are rapidly developing infrastructure for additional imports of liquefied natural gas.
The Russian Central Bank forecasts the economy to shrink by four to six percent this year. The six percent decline in GDP is also in line with the current International Monetary Fund forecast.
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