In the 1920s, despair prompted Soviet leaders to adopt the New Economic Policy (NEP), an attempt at new policies to improve the economy. In 2022, facing sanctions and isolation from Western countries, Russian leaders appear to have adopted another new economic policy. In the 1920s, NEP was based on a greater use of market forces. Today, the policy appears based on force, a combination of stealing from Ukraine, facilitating looting by soldiers and inflicting famine on the world.
Famine: Since the invasion of Ukraine, Russian forces have blocked more than 20 million tons of grain from being shipped through Black Sea ports. The European Union’s foreign policy chief Josep Borrell has called Russia’s action a war crime. Given the quantity of grain blocked, United Nations personnel have warned a famine could take place in parts of the world. This is not an accident. Russian officials are open about leveraging the prospect of mass starvation to compel Western governments to lift sanctions harming the Russian economy.
In June 2022, at the Petersburg Economic Forum, Margarita Simonyan, editor-in-chief of Russian state-controlled RT, said she heard from people several times in Moscow that “All our hope is in the famine.” She continued, “Here is what it means. It means that the famine will start now and they will lift the sanctions and be friends with us, because they will realize that it’s necessary.”
Preventing Ukraine from selling its wheat is not a side effect of the war. It is part of Russia’s economic strategy to leverage widespread hunger to help its economy.
The Russian government is also stealing or nationalizing land from Ukrainian farmers in a parallel to Stalin’s expropriation of Ukrainian farmers’ property during collectivization in the 1930s, which resulted in millions of deaths from famine and saw the deportation of Ukrainian farmers who resisted.
“Moscow’s invasion of Ukraine has captured some of the most productive agricultural land in what is one of the world’s great breadbaskets, disrupting supplies and pushing up food prices,” reported the Wall Street Journal. “Russian forces have also stolen grain and equipment, the Ukrainian government and farmers say. Now, entire farms are being taken, some farmers say. . . Mr. [Dmitry] Skorniakov said that in May a group arrived at his farm in southeastern Ukraine claiming to represent the government of the self-proclaimed Donetsk People’s Republic, which broke away from Ukraine with Russian support in 2014. ‘They said, ‘Now it belongs to us and you work for us, everything is our property,’ Mr. Skorniakov said his workers had told him.
“Valery Stoyanov, 50, said Chechen soldiers took over his farm near the southern city of Melitopol shortly after the invasion began on Feb. 24, telling his farmhands that it now belonged to the unit’s commander. ‘This collective farm is now mine,’ the Chechen commander told workers whom he had gathered to address, Mr. Stoyanov said his workers told him. In the following days, the soldiers sold valuable equipment and shipped out 2,500 tons of grain that was stored at the farm.”
The Ukrainian government estimates Russia has stolen about 400,000 metric tons of grains and seeds, according to the Wall Street Journal. Russia has also bombed Ukrainian farms and grain operations outside of its control.
Looting: The Russian government has difficulty finding enough manpower to prosecute military operations in Ukraine, in part, because it has not declared war and must rely on contracts with troops. One enticement to service appears to be allowing widespread looting, which at least one Russian soldier said in an intercepted phone call was sanctioned by Russian leader Vladimir Putin.
Compensating soldiers via looting was common in medieval times. Widespread reports of looting by Russian troops since the war began shows looting has been permitted as an informal economic strategy to harm Ukrainians and incentivize Russians to serve in the military.
In the near team, the Russian government may achieve some successes with its current approach, but it shows how much the invasion of Ukraine has distorted Russia’s economy and its future. In the long run, Russia is unlikely to build a successful 21st century economy through famine, looting and stealing.
China's Economy Shows Signs of Improvement as Covid Eases – BNN
(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.
China's economy didn't bounce back in the second quarter, China Beige Book survey finds – CNBC
BEIJING — Chinese businesses ranging from services to manufacturing reported a slowdown in the second quarter from the first, reflecting the prolonged impact of Covid controls.
That’s according to the U.S.-based China Beige Book, which claims to have conducted more than 4,300 interviews in China in late April and the month ended June 15.
“While most high-profile lockdowns were relaxed in May, June data do not show the powerhouse bounce-back most expected,” according to a report released Tuesday. The analysis found few signs that government stimulus was having much of an effect yet.
Shanghai, China’s largest city by gross domestic product, was locked down in April and May. Beijing and other parts of the country also imposed some level of Covid controls to contain mainland China’s worst outbreak of the virus since the pandemic’s initial shock in early 2020.
In late May, Chinese Premier Li Keqiang held an unprecedentedly massive videoconference in which he called on officials to “work hard” — for growth in the second quarter and a drop in unemployment.
Between the first and second quarters, hiring declined across all manufacturing sectors except for food and beverage processing, according to the China Beige Book report.
The employment situation likely won’t start to improve until China stimulates its economy more in the fall, China Beige Book Managing Director Shehzad H. Qazi said Wednesday on CNBC’s “Squawk Box Asia.”
So far, there’s been little sign that stimulus has kicked in, especially in infrastructure, said Qazi who is based in New York.
“Transportation, construction companies aren’t telling you they’re getting new products,” he said. “They’re telling you they’ve slowed investment, their new projects have actually slowed.”
Inventories surge, orders drop
Unsold goods piled up, except in autos. Orders for domestic consumption and overseas export mostly fell in the second quarter from the first. Orders for textiles and chemicals processing were among the hardest-hit.
The only standout domestically was IT and consumer electronics, which saw orders rise during that time. Orders for export grew in three of seven manufacturing categories: electronics, automotive and food and beverage processing.
“Weak domestic orders and expanding inventories indicate the presumed second-half improvement will be unpleasantly modest,” the report said.
The authors noted the services sector saw the greatest reversal. After accelerating in growth in the first quarter, services businesses saw revenue, sales volumes, capex and profits drop in the second quarter.
Across China, only the property sector and the manufacturing hub of Guangdong saw any year-on-year improvement, the China Beige Book said.
Official second-quarter gross domestic product figures are due out July 15. GDP grew by 4.8% in the first quarter from a year ago.
U.S. Economy Shrank Worse-Than-Expected 1.6% Last Quarter As Recession Fears Grow – Forbes
The economy last quarter posted its worst annualized showing since the pandemic-induced recession in 2020, the government said in an updated release Wednesday, blaming an unexpected decline in economic activity on the omicron variant of Covid-19 and decreased government assistance.
The U.S. economy shrank at an annual rate of 1.6% in the first quarter of 2022—the first decline since the second quarter of 2020, the Bureau of Economic Analysis reported Wednesday in a worse-than-expected update to last month’s figure, which showed a decline of 1.5%.
The update primarily reflected softer-than-expected spending on business inventories and residential investments, which was only partially offset by an uptick in consumer spending, the government said.
In the first quarter, a record wave of Covid-19 cases spurred by the omicron variant resulted in continued restrictions and business disruptions, while government assistance programs including forgivable loans to businesses and social benefits to households expired or tapered off—further preventing growth, according to the release.
Broad declines in exports, government spending and business inventories, along with increased imports, spurred the overall decline, the government said.
The overall drop stands in stark contrast to the economy’s better-than-expected growth of 6.9% in the fourth quarter, the fastest rate in nearly 40 years, thanks in part to a jump in exports and increased inventory investments by car dealers.
What To Watch For
Economists are widely calling for a return to growth this quarter, thereby avoiding the two consecutive quarters of negative GDP growth that constitute a technical recession, but a growing wave of experts have warned odds of a recession next year are growing. In a research note on Monday, analysts at S&P Global Ratings said aggressive Federal Reserve policy to combat ongoing price spikes will usher in low economic growth this year and potentially risk a recession, warning: “What’s around the bend next year is the bigger worry.” S&P put the odds of a recession in 2023 at 40%—more than the 35% odds Morgan Stanley issued last week.
Though the economy quickly bounced back after the Covid recession in 2020, the Fed’s withdrawal of pandemic stimulus measures, Russia’s invasion of Ukraine and lingering Covid restrictions have heightened market uncertainty this year. Last quarter, the stock market posted its worst showing since the market crash in early 2020, with the S&P falling 5% and the tech-heavy Nasdaq 9%. “Recession risks are high—uncomfortably high—and rising,” Mark Zandi, chief economist at Moody’s Analytics, said in a recent note. “For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck.”
In an email after April’s initial report, which estimated a 1.4% decline despite expectations for 1% growth, Bankrate analyst Mark Hamrick said the lackluster performance serves as a reminder of the “volatile and complicated times in which we live,” but that the contraction is “less worrisome” because key drivers of economic growth, such as consumer and business spending, have been holding up despite the widening trade deficit and big swings in business inventories.
China's Economy Shows Signs of Improvement as Covid Eases – BNN
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