Russia falls into recession, Nine months after beginning its offensive in Ukraine, Russia has entered a recession as a result of the economic pressure caused by Western sanctions, according to official figures released on Wednesday. The third quarter of GDP decreased by 4%, according to a preliminary estimate by the national statistics office Rosstat. With two consecutive quarters of declining GDP, which follows one of a similar size in the second quarter, Russia now satisfies the technical criteria for a recession.
Russia falls into recession
The decrease in economic output between July and September was four percent, which was less than the 4.5 percent reduction that many economists had predicted. A 22.6 percent decline in wholesale commerce and a 9.1 percent decline in retail trade were the main contributors to the contraction. Agriculture increased by 6.2 percent, and building increased by 6.7 percent. Numerous issues have been straining Ru’ssia’s economy. Exports and imports, including those of essential manufacturing parts and spare parts, have been restricted by Western sanctions.
Companies have also been suffering from a lack of staff as a partial mobilisation has taken several hundred thousand men out of the workforce. Despite a contracting economy, Ru’ssia’s unemployment rate stood at 3.9 percent in September, according to Rosstat. As a result, the Ru’ssian economy has become even more dependent upon energy exports, which have accounted for about 40 percent of federal government revenue.
According to the office of Boris Titov, the presidential commissioner for entrepreneurs, about a third of the 5,800 Ru’ssian companies recently surveyed had suffered a drop in sales in the past months. The September mobilisation of 300,000 military reservists has impacted a third of companies, according to that same survey, the daily Kommersant said.
“The situation has continued to deteriorate, it’s no surprise,” said Dmitry Polevoy, director of investments at Locko Invest in Moscow.
– Worse to come? –
However, the Russian economy has so far fared better than many experts anticipated in the face of Western sanctions. The central bank forecast that the gross domestic product will decline by 3.5 percent this year on November 8. According to estimates from the World Bank and IMF, the Russian GDP will decline by 3.4 percent and 4.5 percent, respectively. The economy’s resilience is largely attributable to a tight monetary policy and the rise in global energy prices that followed the offensive in Ukraine.
The central bank of Ru’ssia dramatically increased the main rate from 9.5 percent to 20 percent after the country was subject to Western sanctions in an effort to fight inflation and support the ruble. Following that, the Bank of Ru’ssia immediately decreased it and last month left it at 7.5 percent, which governor Elvira Nabiullina described as an indication that the economy had “adapted” to a new reality. However, a lot of observers think that before Ru’ssia’s economy gets better, things may really get worse.
“GDP could contract even more sharply, by up to seven percent” in the fourth quarter, Polevoy told AFP.
Valery Mironov at the Higher School of Economics in Moscow said sanctions were having a delayed impact on the Russian economy.
“Problems are clearly already present, but in reality we’re seeing their effects being pushed back to 2023,” he said, as the government has taken steps to support companies. The governor of the central bank, Nabiullina, stated last week that the Western sanctions were significant and cautioned against underestimating “their impact on the Ru’ssian and global economy.”