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Russia’s economy expected to outpace Germany and Britain in 2023



They look, on the face of it, like mistakes. This week, number crunchers at the International Monetary Fund released forecasts saying that over the coming year, Russia’s economy will grow, while Britain’s will contract. And that Russia will actually grow faster than Germany, Europe’s economic powerhouse.

But there are no mistakes — just surprising turns of events, in all the countries involved.

The numbers would have been hard to imagine in the early days of the war, when Western sanctions sent the Russian stock market and the local currency, the ruble, into free fall, and hundreds of international firms — from McDonald’s to Boeing — pulled out of the country. In March 2022, U.S. Treasury Secretary Janet Yellen confidently predicted that “the Russian economy will be devastated.”

Even the Russians expected a deeper economic crisis. The Russian finance ministry was reported to be bracing for a fall in GDP of more than 10 percent. As recently as December, a Reuters poll of 15 economists forecast a 2.5 percent drop for the coming year.


And yet here we are, at the beginning of 2023, and the IMF now predicts that the Russian economy, after contracting by 2.2 percent last year, will start growing again in 2023, expanding by 0.3 percent, and then 2.1 percent in 2024. As for those European powerhouses? The U.K. is expected to contract by 0.6 percent; Germany will still be in the black, but only just; growth this year is expected to come in at an anemic 0.1 percent.

“On the one hand, the Russian economy is definitely in a very complicated situation,” Sergey Aleksashenko, a former Russian central banker and deputy finance minister, said last month during a conversation hosted by the Center for Strategic and International Studies. But as for the notion that there has been a total “collapse,” he added, “It’s not true.”

Which begs the question: How did this happen?

For Russia, better news on the homefront …

The answer begins with two distinct economic stories: the first, about what has been happening inside Russia; and the second, about Russia’s links to the outside world.

Western sanctions were designed to pressure Moscow both domestically and internationally; the idea was to “hobble” Russia’s domestic economy and its trading relationships, as then-British Prime Minister Boris Johnson put it in late February 2022. The restrictions included measures to cut off Russia’s central bank from the international financial system, blocking its access to billions of dollars in overseas assets, and to expel the country’s private banking industry from the so-called SWIFT system that allowed it to transact with global counterparts.


The fallout was almost immediate. Ordinary Russians, worried about their savings as news about the sanctions hit the headlines, queued outside ATMs in early March, rushing to withdraw whatever cash they could amid fears that the banks might collapse.

But the evidence now shows that Russia experienced something of a domestic rebound in the second half of 2022. And the paradox is that the war itself has helped drive the turnaround.

While spending on various other domestic programs fell by roughly a quarter, and certain industries have suffered huge losses (according to one estimate, Russian auto sales were likely to end 2022 with a staggering drop of 60 percent), the domestic war economy has expanded dramatically — and more than made up the difference.

In this year’s budget, around a third of all expenditure is devoted to the security sector, according to a recent analysis by the Carnegie Endowment for International Peace. According to the business publication RBC, Russian military spending is expected to jump by nearly 5 trillion rubles ($71 billion) in 2023, with spending on domestic security and law enforcement expected to soar by nearly the same amount.

Last month, the Russian state-owned defense conglomerate Rostec said that, after stepping up production last year, it was further “increasing the pace and volume of production of weapons.” Spending is also rising on personnel: in December, Moscow said it would expand the size of its military from 1 million soldiers to 1.5 million — a sign of its struggle in Ukraine, but also confirmation of increased spending in the country’s defense sector.

The production spikes across the defense sector have meant that the overall statistics for Russian industry weren’t as catastrophic as one might have expected. Despite international sanctions, industrial production in the first 10 months of 2022 was down by a mere 0.1 percent. And it now is expected to grow.

“We have to understand that when you produce not butter but guns, the GDP may grow, and definitely that was the effect in the second half of 2022,” Aleksashenko, the former Russian central banker, pointed out.

… and lots of support from other countries

If the domestic picture was propped up by war spending, beyond its borders Russia has continued to trade relatively freely, and to the tune of tens of billions of dollars — even as sanctions made it harder for Russian firms to do business with foreign counterparts.

There are two principal reasons for this: Russia’s ability to persuade major trading partners to ignore the Western sanctions; and Russia’s vast and varied natural resources.

Russia continues to command dominant positions in the world’s oil and gas markets. It is also the world’s biggest exporter of fertilizer. And for many countries, pivoting suddenly from Russian supplies has proved too costly — whatever their views of the Ukraine war.

The result: Moscow’s clout in these markets has meant that, despite the efforts of the United States and its European partners, several countries have continued to trade at high volumes with Moscow. India is a prime example: While Western nations have moved to cut their dependence on Russian energy, India has sharply increased its consumption of Russian oil. Indeed, India is now estimated to be importing 1.2 million barrels of Russian oil each month — 33 times the levels seen a year earlier, according to Bloomberg data.

NATO ally Turkey also continues to trade with Moscow. In December, for example, it imported 213,000 barrels of Russian diesel each day, the most since at least 2016.

Imports to Russia have also proved more resilient than headlines about the sanctions would suggest, as Moscow deepens its relations with countries such as China and Turkey. Imports to Russia from Turkey, for example, in December stood north of $1.3 billion, more than double the levels seen a year earlier.

And in Europe itself, even as the continent rushes to end its dependence on Russian energy, leaders determined that they couldn’t simply turn off the tap when war broke out. The climate campaign group Europe Beyond Coal estimates that, despite the war, European Union countries have spent more than $150 billion — that’s right, billion — on Russian fossil fuels since Moscow’s invasion of Ukraine.

Troubles in Germany and the U.K.

While Russia found ways to trade and to prop up — at least temporarily — its economy domestically, its invasion of Ukraine triggered a sudden uptick in global energy and food prices. And that in turn pressured the economies of its rivals, including Britain and Germany.

As Grid has reported, the war created a particular economic trauma for Germany, which was heavily dependent on Russian energy supplies before the Russian invasion. Initially, energy prices soared, stoking inflation and hitting the wallets of tens of millions of ordinary Europeans. The impact has continued; recent figures showed that retail sales in Germany in December fell sharply from November figures, despite expectations of a slight rise for the Christmas season. Analysts had expected sales to climb by 0.2 percent; official figures showed that in fact they had cratered by 5.3 percent.

Food and fuel inflation, and its effect on the cost of living, have hit Britain hardest of all. It didn’t help that the U.K. endured its most politically fraught year in recent memory (marked by three prime ministers and competing economic policies) and that the country is only beginning to feel the negative impact of Brexit — Britain’s political divorce from the European Union, its biggest trading partner. As Sophie Hale, principal economist at the Resolution Foundation, an independent London-based think tank, told Grid in November: “If Brexit had not happened, I think the U.K. would be doing better relative to its counterparts.”

The upshot: Even as Covid-19 restrictions fell away and economy after economy started to recover, Britain lagged behind its international counterparts. And now the IMF forecasts that it will actually go in reverse.

And so what to non-economists may look like an accounting misfire by the IMF actually adds up: Russia is doing far better than most experts had anticipated — better even than some of the economically powerful nations that set out to punish the Kremlin for its invasion of Ukraine.

Back in May last year, three months after the invasion of Ukraine, Janis Kluge, an expert on the Russian economy at the Germany Institute for International Security Affairs, told Grid that “when [Vladimir] Putin says Russia has weathered the first shock of sanctions, you know, it’s hard to argue with that.”

Now almost a year into the war, and despite unprecedented action by the West, the statistics suggest that it’s still hard to argue with Putin’s assessment. Perhaps even harder now than it was then.

Thanks to Dave Tepps for copy editing this article.


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Charting the Global Economy: Fed, BOE, SNB Push Ahead With Hikes



(Bloomberg) — The Federal Reserve, Bank of England and Swiss National Bank all proceeded with expected interest-rate increases this week, reinforcing their commitments to curb inflation despite turmoil in the banking sector.

Policymakers in the US and UK hiked by a quarter point while those in Switzerland opted for a half point. All three signaled more increases could be in store.

The UK was especially under pressure to tighten policy after a report earlier in the week showed consumer prices advanced 10.4% in February, surpassing all estimates in a Bloomberg survey and bucking economists’ expectation of a slowdown.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:



Iceland’s central bank extended western Europe’s longest policy-tightening campaign with a full percentage-point increase, while the Philippine central bank shifted to a smaller hike. Norway, Taiwan and Nigeria also kept hiking. Officials in Turkey left rates unchanged, as did those in Brazil despite pressure from the government for looser policy.

The rush of layoffs that began late last year isn’t letting up, marking the worst start to a year since 2009, with nearly 52,000 jobs lost in one week in January alone. Since Oct. 1, executives across sectors have sacked almost half a million employees around the world, according to a comprehensive review of layoffs by Bloomberg News.


History remembers Paul Volcker as the slayer of inflation, and Ben Bernanke as the crisis firefighter. Jerome Powell is in danger of having to play both roles at once — or, what may be worse, to choose between them.

Powell and his colleagues are expecting a sharp dropoff in economic activity through the rest of 2023 — at least, that’s the implication from new economic projections they published this week.

Rent increases for US single-family homes eased for a ninth straight month in January, pushing the annual rate to the lowest since the spring of 2021, according to CoreLogic. All 20 major metro areas tracked by CoreLogic posted single-digit annual rent increases, for the first time since late 2020.


UK inflation accelerated unexpectedly in February for the first time in four months, keeping the BOE on course to raise interest rates. Food and non-alcoholic drink prices soared 18%, the fastest pace in 45 years, while core and services inflation also picked up.

Euro-zone economic growth continued to pick up in March, driven exclusively by the service sector as concerns over energy supplies recede. The overall rate of expansion rose to the highest level in 10 months, according to business surveys by S&P Global.


China’s population is emerging from a massive virus wave unleashed by the rapid reversal of Covid Zero in mid-December. People are planning trips, dining out and returning to shopping malls. Still, residents of the world’s second-biggest economy aren’t splashing out like they used to.

South Korea’s early trade data showed a deepening slump in exports as global demand for semiconductors remains weak and China’s reopening is yet to generate any boost.

Singapore’s core inflation, a key barometer for the central bank, kept its 14-year-high pace in February as officials weigh fresh threats to the global economy amid the Federal Reserve’s resolve to stay the course on tightening.

Emerging Markets

Sri Lanka clinched a $3 billion bailout loan from the International Monetary Fund after six months of negotiations. Now comes the harder part: getting a debt restructuring agreement and seeing through monetary policy and tax reforms.

—With assistance from Mathieu Benhamou, Ruchi Bhatia, Matthew Boesler, Libby Cherry, Jo Constantz, Jennah Haque, Jinshan Hong, Michelle Jamrisko, Sam Kim, Phil Kuntz, Karen Leigh, Rich Miller, Tom Rees, Zoe Schneeweiss, Naomi Tajitsu, Alex Tanzi, Kevin Varley, Alexander Weber and Karl Lester M. Yap.


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Euro-Area Economy Strengthens More on Service-Sector Surge – Financial Post



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(Bloomberg) — Euro-zone economic growth continued to pick up in March, driven exclusively by the service sector as concerns over energy supplies recede.

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The overall rate of expansion rose to the highest level in 10 months, according to business surveys by S&P Global. Manufacturing output broadly stagnated, however, only supported by a backlog of orders as demand continued to fall.


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“Growth has been buoyed since the lows of late last year as recession fears and energy market worries fade, inflation pressures ease and the unprecedented supply chain delays seen during the pandemic are replaced with record improvements to supplier delivery times,” said Chris Williamson, an economist at S&P Global.

Sentiment in Europe has been improving as it became clear that the region would avoid worst-case scenarios for access to natural gas predicted after Russia cut off supplies to the bloc. Recent turmoil in the banking sector has cast some doubt on how the global economy will develop, though European officials have sounded confident that the sector can withstand any fallout.

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While activity improved in both Germany and France, the strongest performance came in the rest of the 20-nation euro area.

What Bloomberg Economic Says…

“The euro-area composite PMI survey for March suggests the economy is beginning to emerge from a period of stagnation and holding up well under the weight of higher interest rates. While monetary policy works with long and variable lags and choppy waters may still lie ahead, the resilience of the economy should allow the hawks at the European Central Bank to succeed in pushing for more interest rate increases”

—David Powell, economist. For full analysis, click here

Inflation is still running far above the European Central Bank’s 2% target, however, with underlying data becoming the key focus for policymakers. While price gains continued to moderate in March, they remain elevated by historical standards, according to S&P Global.

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“Such stubborn inflationary pressures, fueled primarily by the service sector and rising wage costs, will be a concern to policymakers and suggests that more work may be needed in terms of bringing inflation down to target,” Williamson said.

The jobs market also remained resilient. Employment growth reached a nine-month high, with acceleration seen especially in services in line with rising demand.

Firms’ confidence in the business outlook dipped, though it remained well above levels seen in late 2022. That could be linked to concerns over uncertainty caused by banking-sector stress and the impact of further increases in interest rates, S&P Global said.

The composite PMI reading for the UK edged lower to 52.2 in March from 53.1 the previous month, suggesting the economy has avoided a recession for now. British companies are the most confident they’ve been since the start of Russia’s invasion of Ukraine.

Data earlier revealed activity in Japan’s services sector edged up to the strongest in almost a decade as the return of Chinese tourists boosted demand. The US number due later on Friday is expected to be below 50.

—With assistance from Mark Evans, Joel Rinneby, Tom Rees and Zoe Schneeweiss.

(Updates with UK PMI data in 10th paragraph.)

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Economy headed into a ‘Bermuda Triangle’ financial crisis: Nouriel Roubini



  • The economy is headed into a “Bermuda Triangle” of risk, economist Nouriel Roubini warned.
  • Roubini pointed to three stressors facing the US economy.
  • He sounded the alarm for a stagflationary debt crisis and a severe recession to hit the US.

In a recent interview on the McKinsey Global Institute’s “Forward Thinking” podcast, the top economist warned that the economy was risking another financial crisis as central bankers continue to tighten monetary policy.


Federal Reserve officials raised interest rates another 25 basis-points this week, and have hiked rates 475 basis-points over the last year to control inflation. That marks one of the most aggressive Fed tightening cycles in history, and could place the economy under three different kinds of stress, Roubini warned.

First, high interest rates could easily overtighten the economy into a recession, experts say, which reduces income for households and corporations.

Second, high interest rates means firms are battling higher costs of borrowing and waning liquidity, which weighs on asset prices. Last year, US stocks plunged 20% amid the Fed’s rate hikes, with warnings from other market commentators of an even steeper crash in equities this year.

Finally, high interest rates are pressuring the mountain of debt, both private and public, that was amassed during the years of low rates, Roubini said. He pointed to bankrupt “zombies”, which include households, corporations, and governments.

“It’s got like, a Bermuda Triangle. You have a hit to your income, to your asset values, and then to the burden of financing your liabilities. And then you end up in a situation of distress if you’re a highly leveraged household or business firm. And when many of them are having these problems, then you have a systemic household debt crisis like [2008],” he warned.

Roubini, one of the experts who called the 2008 subprime mortgage crisis, has repeatedly sounded the alarm for another crisis to strike the US economy. The scenario he envisions combines the worst aspects of 70s-style stagflation with something like the 2008 crisis, with  a severe recession, stubborn inflation, and mounting debt levels bludgeoning economic growth.

He and other top economists have criticized the Fed’s aggressive rate hiking regime over the last year, and some experts have called central bankers to stop raising interest rates entirely out of fear of “breaking” something in the financial system.

Signs of stress are mounting, the most recent being the failure of Silicon Valley Bank. But pausing interest rates could panic investors and lead to a resurgence of inflation, meaning central bankers are powerless no matter what they do with rates, Roubini has said previously.


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