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Ukraine war: Russia's economy holding out against sanctions – DW (English)



In the dramatic days following Russia’s invasion of Ukraine one year ago, the Russian economy was seriously rattled.

Western allies, led by the United States and European Union leveled severe sanctions against the country’s financial system. The ruble fell to a record low against the US dollar, the Russian central bank doubled interest rates, and the Moscow stock exchange was shut for several days.

In a statement, EU leaders described “massive and severe consequences” for Russia. Economists predicted a huge plunge in GDP. Weeks after the sanctions were brought in, the White House said in a statement: “Experts predict Russia’s GDP will contract up to 15 percent this year, wiping out the last fifteen years of economic gains.”

It hasn’t happened. While the past 12 months have been very challenging for the Russian economy, it has performed far better than expected.

Getting a clear picture is ultimately impossible. The Kremlin made a lot of key economic data classified after it launched the war on Ukraine and it remains so today. The underlying shape of the economy is uncertain. However, it’s already obvious that the collapse many predicted has not materialized.

“I think we can say that the economy shrank a lot less than the 10 to 15% that people were talking about at the beginning of the war,” Alexandra Vacroux, executive director of the Davis Center for Russian and Eurasian Studies at Harvard University, told DW.

European Commission President Ursula von der Leyen gives a press conference on Russia's military operation in Ukraine after talks with President of the European Council and NATO Secretary General, at NATO headquarters in Brussels on February 24, 2022.
EU Commission President Ursula von der Leyen announced initial sanctions against Russia in February 2022Image: John Thys/AFP

She believes Russian GDP fell by between 3% and 4% over the past 12 months. That’s broadly in line with estimates from the World Bank, the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD).

Russia’s official statistics agency this week said the economy contracted by 2.1% in 2022, having predicted a contraction of 12%.

Panic in Moscow

Chris Weafer has worked in Russia for around 25 years as an investment advisor and strategist. He says there was a lot of genuine panic within Russia about the economy in the early months after the invasion. That was not only due to the sanctions but also because many companies were voluntarily leaving Russia.

“There was speculation that the loss of trade and logistic routes would hit manufacturing very hard and that one would have significant job losses. So around that time, I was definitely very pessimistic about the outlook for the economy in 2022,” he told DW.

However, he says, by May the picture was “improving rapidly.” “You could see that the worst-case predictions were not going to happen.” 

Europe kept buying Russian energy for much of 2022

There are several reasons why the Russian economy has outperformed expectations. A major one is its hydrocarbons, namely oil and gas. The EU did not sanction Russian oil and gas imports in the early months of the invasion, as it was so dependent on them for its energy needs.

Europe continued to buy Russian oil and gas for much of 2022, while Moscow also found willing new energy trade partners in China, India and elsewhere. Earlier this month, the Russian central bank reported a record-high trade surplus of $227 billion (€211 billion) for 2022, largely driven by its colossal energy exports.

“Russia has been able to earn almost like windfall revenues from exporting those products at a very high level because traders in Europe not only continued to buy Russian products, but they started stockpiling them,” says Weafer.

The Stars Coffee logo is seen on a window after former Starbucks coffee shops are reopened as Stars Coffee in Moscow, Russia on August 18, 2022.
Some companies such as Starbucks exited the Russian market — and were quickly replaced by imitatorsImage: Dmitry Korotaev/AA/picture alliance

That ‘windfall’ meant the Russian government was able to greatly limit the impact of western sanctions on its foreign reserves.

“It was able to use the money to provide subsidies for key industries, employment support, make sure it continued to fund not only the military but also social programs and to generally maintain economic and social stability in the country,” says Weafer.

That in turn has helped keep unemployment low, reportedly at around 4%, although that figure is significantly distorted by the fact that many people have left the labor force, either because they were drafted into the armed forces or because they left the country in the aftermath of the invasion.

Another factor that has helped keep the Russian economy going is that a majority of western companies continued to operate in the country once the initial clamor to exit the market faded.

Weafer says that while companies such as McDonald’s came under huge social media pressure to leave, most others rode out the storm. “Especially those that are important for the economy, such as big taxpayers or revenue generators or particularly big employers, they’ve been much, much slower to leave.”

Old sanctions, new markets

Another reason for the Russian economy’s robustness relates to the sanctions themselves. Vacroux says sanctions have consistently failed to live up to expectations in countries such as Venezuela, Iran and Russia itself.

“The fact is that sanctions are most effective right before you levy them,” she says. “When you have the threat and you say, if you do X, we’re going to sanction Y, and at that point, the actor stops to think, like, is it really worth doing X? And maybe the sanctions have an effect. But once Russia does Y — invades Ukraine — then you really have no more leverage.”

A Ukrainian soldier of a artillery unit fires towards Russian positions outside Bakhmut on November 8, 2022, amid the Russian invasion of Ukraine.
The war in Ukraine prompted unprecedented sanctions against RussiaImage: Bulent Kilic/AFP/Getty Images

Then there is the fact that the Kremlin has been used to dealing with sanctions for almost a decade, since its annexation of Crimea in 2014.

The Russian central bank, well-versed in crisis management, took decisive action to shore up its financial system in February and March 2022. The interest rate hike helped prevent a run on banks as the country’s inflation rate eased gradually.

Weafer says a decade of sanctions means the country’s banks have been heavily stress-tested while the Russia has also become relatively self-sufficient in key industries, particularly in food production.

Another major factor driving Russia’s economic resilience is the strengthening of its trade ties with China and India. Trade between the countries has soared while Russia has also been able to increasingly benefit from so-called parallel imports, whereby western products are now finding their way into Russia again via third-party countries like China, India and others across central Asia.

Vacroux says China is “the big winner”, pointing out that while trade between the countries soared, so too has Moscow’s dependence on Beijing.

Russland Ölfelder
Oil revenues saved Russia’s economy in 2022, and will be needed again in 2023Image: Dmitry Dadonkin/TASS/Sipa USA/IMAGO

“China doesn’t really care about Russia,” she says. “It’s 3% of Chinese trade. But Russia now cares a lot about China. And the good thing about that for us is that when China says, ‘You cannot use nuclear weapons in Ukraine. Right, don’t do that,’ Russia really has to listen.”

2023: A different story?

Expectations for the Russian economy in 2023 vary. The IMF recently said it expected the country’s economy to grow by 0.3% in 2023, although others have forecast a GDP drop of around 2%.

Europe has managed to largely divest itself of its dependence on Russian energy over the course of the last 12 months. However, so far there is little evidence to suggest that the bloc’s price cap sanction on Russian oil — introduced in December — is working. According to research carried out by the Briish weekly The Economist, Russian crude oil sales remain high, driven by demand from China and India.

Weafer believes the new EU sanctions,which kicked in on February 5 and target diesel and other refined products, are a potentially key moment.

“There’s an enormous question mark over how much money Russia will earn from exporting hydrocarbons and extractive industries this year,” he said. “And it certainly will be significantly less than in 2022, that’s for sure.”

Edited by: Kristie Pladson

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China central bank says cuts two key rates to support economy – FRANCE 24 English



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China central bank says cuts two key rates to support economy  FRANCE 24 English


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Here is Trump economy: Slower growth, higher prices and a bigger national debt



If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.



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China Stainless Steel Mogul Fights to Avoid a Second Collapse



Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.



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