Economy

How much has Putin's war on Ukraine damaged Russia's economy? – Marketplace

Published

2 years ago

May 3, 2022

European Union energy ministers held emergency talks Monday about their purchases of Russian natural gas. The previous week, Moscow cut off supplies to two member states, Poland and Bulgaria, because they refused to pay for the gas in rubles. Fears are growing that Germany, Europe’s economic powerhouse, could be terminated next.

But while Europe frets about this latest economic repercussion caused by Russia’s war on Ukraine, what of Russia itself?

Oil and gas fund up to 50% of the Russian budget. Is President Vladimir Putin killing his golden goose and battering the Russian economy?

Putin has shrugged off the prospect of parting company with Europe, his best natural gas customer. But Ole Hvalbye, an energy analyst with the SEB bank in Oslo, Norway, said this would be, for Russia, a very painful divorce.

“You can think about this as a sort of 25- to 30-year-old marriage, you know. These are really long-term contracts. It takes time to build the infrastructure for gas supply. It’s a massive investment,” he said.

“Russia has, sort of, ruined their reputation,” said Ole Hvalbye, an energy analyst in Oslo. (Courtesy Hvalbye)

Doubling the existing Russian gas pipeline network to China would take eight years, cost billions and still cover less than half the lost sales to Europe, Hvalbye estimated. Then, there’s the damaging psychological effect of Russia cutting off supplies to Poland and Bulgaria.

“Russia has, sort of, ruined their reputation. And there will not be many countries going into these new long-term contracts with them,” he said.

The reputation for unreliability might also affect long-term contracts to supply crude oil and oil products, which are Russia’s biggest export. They’re worth almost $200 billion a year.

So, has Putin’s war been an economic disaster for Russia? The immediate financial cost has certainly been enormous, according to Tim Ash, senior strategist at BlueBay Asset Management in London.

Tim Ash of BlueBay Asset Management. (Courtesy Ash)

“It comes to something like $1.4 trillion of impact on Russia,” Ash said. “That’s a huge amount of money. It’s about $8,000 per head of the Russian population.”

That figure takes into account the halving of the Russian stock market’s value, the freezing of assets controlled by the central bank and Russian oligarchs, and Western sanctions’ overall effect on economic activity. The sanctions are likely to continue as long as Putin remains in power.

“This adds up to less investment, less growth, lower living standards, probably a brain drain, higher inflation and an overall undermining of Russia’s productive capacity,” Ash said.

This isn’t just a Western perspective. Russia’s central bank surveyed more than 13,000 businesses across the country, and, as pointed out by Elina Ribakova, deputy chief economist at the Institute of International Finance, the results were dire.

“Almost every industry you take, they’re having shortages, they’re having difficulties to export their products to the markets they used to export to — Europe is the most important trading partner for Russia — and they’re also having difficulty getting the parts for their production,” Ribakova said.

The institute is forecasting a 15% plunge in Russia’s gross domestic product this year. Unemployment is expected to skyrocket, especially since more than 700 multinational companies are pulling out of Russia and will be shedding employees as they go.

“It will take a few months for them to withdraw, and that will also weigh on the economic outlook,” Ribakova added.

The departure of so many international companies will also deliver a devastating blow to Russian industry. Nicholas Redman, director of analysis at Oxford Analytica, a political and economic consulting firm, pointed to the automotive sector as a possible casualty.

Nick Redman, director of analysis at Oxford Analytica. (Courtesy Redman)

“Russia over the past 30 years has really built up quite a large domestic car industry. A lot of production has been located in Russia. All the world’s biggest car manufacturers are there, but they’re all headed for the exit. So that’s a significant problem over the longer term: How does Russia replace that Western investment and international expertise in logistics and design?” Redman said.

With this economic calamity unfolding across Russia, one might expect support for Putin and his war to waver. But although domestic opinion surveys have to be treated with skepticism, Redman said all the other indications suggested that support for the Russian leader and what Putin calls the “special military operation” in Ukraine remains solid.

“Right now, it doesn’t look like Putin’s grip on power is in any way challenged,” Redman said.

And it may not be for some time. Whipped up by the Kremlin’s propaganda machine against NATO and the West, the Russian people seem prepared to endure quite a lot of economic pain.

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

Published

2 days ago

September 10, 2024

Anne Joseph

VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

Published

2 days ago

September 10, 2024

Anne Joseph

NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

Published

2 days ago

September 10, 2024

Anne Joseph

HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

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