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Russian economy 'won't be as it was,' central banker says – ABC News

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ST. PETERSBURG, Russia — The head of the Russian Central Bank warned Thursday that the country’s economy faces pressure from abroad that could persist indefinitely, dampening hopes that conditions could return to what they were before Russia sent troops into Ukraine.

“It seems to me that it’s obvious to everyone that it won’t be as it was before,” Elvira Nabiullina said at a session of the St. Petersburg International Economic Forum, an annual showpiece gathering aimed at investors.

“External conditions have changed for a long time indeed, if not forever,” she said.

Russia was hit by a wide array of sanctions after the start of the Ukraine military operation, including major banks being cut off from the SWIFT international payment system and Western bans on flights. Hundreds of foreign companies have suspended operations in Russia or pulled out entirely.

The consequences of those actions have yet to be fully assessed.

Minister of Economic Development Maxim Reshetnikov told the same session that the prognosis is for Russia’s gross domestic product to fall by 7.8% this year, but “in the last month, there’s been a wave of improving assessments and prognoses.”

Many Russian officials have tried to brush off sanctions by contending that Russian enterprises can step in to take over.

Government funding could help those efforts, but Finance Minister Anton Siluanov warned that such measures could be overdone.

“Now we hear, ‘Let’s get more funding, let’s invest more there’ … such budget medicine should not turn into a narcotic,” he said.

After the ruble lost as much as half its value in the first weeks of the Ukraine conflict, Russia took significant measures to support it, leading to a rebound that boosted it to levels not seen in years. However, that has made Russian exports more expensive. Many countries, meanwhile, are moving to lessen their dependence on Russian oil and natural gas.

Nabiullina called for Russia to reduce its emphasis on exports overall in favor of domestic production.

“It has always been believed that exports are our intrinsic value,” she said. “We need to rethink and, finally, think about the fact that a significant part of production should work for the domestic market, more processing, more creation of final products.”

———

Heintz reported from Moscow.

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The US economy shrank 1.6% in the first quarter, adding to recession fears – CNN

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Minneapolis (CNN Business)The US economy shrank at a slightly faster rate than previously estimated during the first quarter, the Bureau of Economic Analysis said Wednesday.

With one quarter of negative economic growth in the books, the data adds to fears that a recession may be looming.
Real gross domestic product declined at an annualized rate of 1.6% from January to March, according to the BEA’s third and final revisions for the quarter.
Previously, the advance estimate released in April showed a contraction of 1.4%. Last month, that was revised to a decrease of 1.5%.
The first quarter GDP performance, which the BEA noted includes some unquantified effects from the pandemic and the Omicron variant surge, stood in contrast to the fourth quarter of 2021, when the economy grew at a rate of 6.9% from the prior quarter.
The first quarter of 2022, however, marked the start of Russia’s invasion of Ukraine, which sent economic shockwaves throughout the global supply chain, as well as the food, finance and energy markets.
Domestically, US inflation has soared to levels not seen in decades amid ongoing supply chain challenges, rising costs for commodities and labor and spiking oil prices.
The BEA attributed the latest decline of 0.1 percentage point to slower-than-expected growth in consumer spending, although that was partially offset by gains in private inventory investment.
The shift in estimates on consumer spending puts additional emphasis on the latest Personal Consumption Expenditures price index data, one of the Federal Reserve’s preferred gauges of inflation, said Shannon Seery, a Wells Fargo economist. The latest report is set for release on Thursday.
Wells Fargo expects a mild recession to occur in the second quarter of 2023, though strong household finances and solid consumer and business balance sheets should keep such a downturn, if it occurs, fairly tame, Seery said.
While a recession is commonly defined as two consecutive quarters of GDP declines, that’s not a hard-and-fast rule, especially for the folks who make the official determination. The National Bureau of Economic Research, the arbiter of US recessions, considers a range of indicators in addition to GDP performance and defines a recession as a “significant decline in economic activity that is spread across the economy and lasts more than a few months.”
The advance estimate for second-quarter GDP performance is scheduled for release on July 28.

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The pandemic may have forever altered the economy, Fed Chair Powell says – CNN

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(CNN)It’s not yet clear if the US economy will ever return to its pre-pandemic status, Federal Reserve Chairman Jerome Powell said Wednesday at a central banker forum in Portugal.

“The economy is being driven by very different forces. What we don’t know is whether we’ll be going back to something that looks like, or a little bit like, what we had before,” Powell told a panel that included European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey.
The central bank heads, who collectively hold around $20 trillion on their balance sheets, discussed how “new forces” have changed inflationary dynamics and the global economic landscape — perhaps forever.
“I don’t think we’re going back to that [pre-Covid] period of low inflation,” Lagarde said, noting that Russia’s invasion of Ukraine will “change the picture and the landscape within which we operate.”
Along with pandemic-related supply chain disruptions, Powell said Russia’s war has “added tremendously” to food and inflation pressures. That has made the Fed’s role of securing price stability and maximum employment “a different exercise from the one that we’ve had for the past 25 years,” he said.
All three central bankers are battling surging inflation in their economies. The Fed embarked on a course earlier this year to hike interest rates and combat the worst US inflation since the 1980s. Earlier this month, Fed officials voted to implement an interest rate hike of three-quarters of a point, the first time since 1994 that it has approved an increase of that size.
While a growing pool of analysts and economists fear such aggressive moves could push the economy into a recession within the next 12 months, Powell said he believes the US economy is robust enough to withstand a moderation in growth, since households and businesses are both in very strong financial shape.
But the Fed Chair warned that entrenched or persistent inflation would be a worse outcome than an economic downturn.
“Is there a risk that we would go too far [with rate hikes]? Certainly there’s a risk,” Powell said. “But I wouldn’t agree that that is the biggest risk to the economy. The bigger mistake to make would be to fail to restore price stability.”

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China's Economy Shows Signs of Improvement as Covid Eases – BNN

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(Bloomberg) — China’s economy showed further signs of improvement in June with a strong pickup in services spending as Covid outbreaks and restrictions were gradually eased.

The official manufacturing purchasing managers index rose to 50.2 from 49.6 in May, the National Bureau of Statistics said Thursday, slightly below the median estimate of 50.5 in a Bloomberg survey of economists. It was the first time since February that the index was above 50, indicating expansion in output compared with May.

The non-manufacturing gauge, which measures activity in the construction and services sectors, climbed to 54.7, the highest in more than a year and well above the consensus forecast of 50.5. 

China’s CSI 300 Index rose as much as 0.9% while major stock gauges in Asia broadly fell.

Government restrictions to contain Covid outbreaks have gradually eased over the last month. The financial hub Shanghai lifted its two-month lockdown at the start of June by allowing more shops to reopen, more factories to resume production, and for port operation to pick up. 

The data suggests “the pace of recovery accelerated as the Covid situation stabilized,” said Peiqian Liu, chief China economist at NatWest Group Plc. There was a “broad based but still soft recovery in both production and new orders,” and the figures show the rebound is still milder compared with the recovery from the Wuhan lockdown in 2020, she said.

Some 19 of the 21 sectors in the service sectors tracked in the survey returned to expansion last month, up from just six in the previous month, according to the NBS. Gauges of sectors previously hit badly by the outbreaks all improved, such as railway transport, air transport, accommodation, catering and entertainment.

The recovery remains fragile though as the country sticks to its Covid Zero strategy, meaning restrictions could be tightened if outbreaks of the highly transmissible omicron variant flare up again. Chinese President Xi Jinping reaffirmed his Covid Zero policy this week, saying it was the most “economic and effective” for the country.

Economists, meanwhile, are holding firm on their gross domestic product growth forecasts for this year. The median projection in a Bloomberg survey for 2022 growth is 4.1%, well below Beijing’s annual target of around 5.5%. Bloomberg’s aggregate index of eight early indicators showed some improvement in June, though the recovery remains muted.

(Updates with additional details)

©2022 Bloomberg L.P.

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