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Russia enters recession - Economic Policy

Russia enters recession – Economic Policy

Russia has officially entered recession after a 4% drop in its gross domestic product (GDP) in the third quarter, according to an initial assessment published on Wednesday by the Rosstat statistics agency.

The trend, in the wake of an already weighed down second quarter (-4.1%), is largely affected by the effects of heavy Western sanctions following the Kremlin’s military intervention in Ukraine. Analysts, however, expected a more marked fall in the economy between July and September, around -4.5%.

According to Rosstat, wholesale (-22.6%), retail (-9.1%), but also freight (-5.5%) and manufacturing industry (-2%) pulled decline in economic activity. On the other hand, construction (+6.7%) and agriculture (+6.2%) showed signs of good health. The last technical recession in Russia dates back to 2020-early 2021, years marked by the Covid-19 pandemic.

The first three months of 2022 had seen Russian GDP grow by +3.5%, but the outbreak of the offensive in Ukraine at the end of February led to a rain of international sanctions and many problems for the Russian economy: imports and exports limited, exacerbated shortage of staff, difficulties in supplying spare parts, etc. According to a forecast by the Russian Central Bank carried out on November 8, GDP should contract around -3.5% over the whole of 2022, a far cry from the apocalyptic forecasts envisaged in the spring.

The IMF (-3.4%) and the World Bank (-4.5%) also anticipate a drop in GDP year-on-year in the same orders of magnitude. Despite contracting activity, Russia is still officially in a situation of full employment, with an unemployment rate of 3.9% in September, according to Rosstat. After raising its key rate to 20% in the wake of the first sanctions at the end of February, the Russian Central Bank has set it at 7.5% since mid-September and does not plan to change it by the end of the year, a sign of a certain “adaptation” of the Russian economy to a “new reality”, according to its boss Elvira Nabioullina.

The trend, in the wake of an already weighed down second quarter (-4.1%), is largely affected by the effects of heavy Western sanctions following the Kremlin’s military intervention in Ukraine. Analysts, however, expected a sharper fall in the economy between July and September, around -4.5%. According to Rosstat, wholesale trade (-22.6%), retail trade (-9.1 %), but still freight (-5.5%) and manufacturing industry (-2%) pulled economic activity down. On the other hand, construction (+6.7%) and agriculture (+6.2%) showed signs of good health. The last technical recession in Russia dates back to 2020-early 2021, years marked by the Covid-19 pandemic. The first three months of 2022 had seen Russian GDP grow by +3.5%, but the outbreak of the offensive in Ukraine at the end of February brought a rain of international sanctions and many problems for the Russian economy: limited imports and exports, exacerbated staff shortages, difficulties in the supply of spare parts, etc. According to a forecast by the Russian Central Bank carried out on 8 November, GDP should contract around -3.5% over the whole of 2022, a far cry from the apocalyptic forecasts envisaged in the spring. The IMF (-3 .4%) and the World Bank (-4.5%) are also anticipating a drop in GDP year-on-year in the same orders of magnitude. Despite contracting activity, Russia is still officially in a situation of full employment, with an unemployment rate of 3.9% in September, according to Rosstat. After raising its key rate to 20% in the wake of the first sanctions at the end of February, the Russian Central Bank has set it at 7.5% since mid-September and does not plan to change it by the end of the year, a sign of a certain “adaptation” of the Russian economy to a “new reality”, according to its boss Elvira Nabioullina.

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