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Ominous forecasts for the Russian economy, consumption declines

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Large numbers of workers have left the factories to fight at the front, and their absence can take a percentage point off the growth of the private sector

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According to economists, in the last quarter of last year the Russian economy must have shrunk by 4.6%. [EPA]

BLOOMBERG, REUTERS

Russia may have so far avoided the deep recession Westerners predicted, but Russia's economy will not emerge completely unscathed from this showdown with Europe and the US. Until recently, its GDP had fallen by just 2.5% and defied forecasts of a 10% contraction despite sanctions, a $300bn freeze on its foreign exchange reserves and a $60-a-barrel ceiling on oil prices. Russian oil. However, according to the latest estimates of economists who spoke to Bloomberg, in the last quarter of last year the Russian economy must have shrunk by 4.6%.

It is estimated that in 2026 its economy will be by 8% less compared to what it would have been without the war in Ukraine.

So far the Russian economy has been largely supported by its allies, as countries that still maintain trade relations with Moscow and refrain from condemning the invasion and war in Ukraine collectively account for more than 30% of global GDP. In a sense, after all, the sanctions were not as harsh as they could have been, since the E.U. and the US was forced to moderate them in order to ensure the flow of Russian hydrocarbons into their economies. Despite the sanctions, Russia pumped more oil throughout last year, and high energy prices have given it a whirlwind of revenue. At the same time, moreover, it exported a large volume of oil to China and India. By also imposing strict controls on capital movements and initially raising interest rates only to lower them again later, the Bank of Russia managed to avoid a financial crisis. The price, however, was the rapid reduction in lending to consumers and the corresponding drop in consumption. So a year on from the start of the war, Vladimir Putin may feel that the economic consequences are not enough to change their plans.

However, according to estimates by Bloomberg economists, things will be more difficult for Russia in the future. Large numbers of workers have left the factories to fight at the front, and their absence can take a percentage point off the growth of the private sector. After all, the war will worsen the country's demographic problem and its labor force is expected to decrease by 6.5% in the next decade. It is thus estimated that in 2026 Russia's economy will be 8% smaller compared to what it would have been without the war in Ukraine.

For now, however, Russian consumers are paying the price, as evidenced by the figures for car sales in the country. While analysts are still debating the effectiveness of the sanctions, the industry that has definitely been hit is the auto industry as they are heavily dependent on foreign industries and imported parts. Car production in Russia has plummeted and is at its lowest level since the collapse of the Soviet Union. At the same time, Russians' spending on buying new cars has dropped by 52% and purchases of new cars by 58.8%. By contrast, purchases of used cars, which are more affordable for Russians, were up 145%, given that inflation in the country is at 11.8% and the average income has fallen by 1%.

Source: www.kathimerini.com.cy

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