Page 6 - RusRPTSept22

1.0 Executive summary
Russia’s GDP contracted by 4.3% year on year in July 2022, moderating the decline of 4.9% y/y seen in June, according to the latest date by the Ministry of Economic Development. To remind, For 2Q22 overall GDP contracted by 4%.
The main support to GDP came from extraction that increased by 0.9% y/y growth in July (versus 1.4% y/y in June), with construction growth accelerating to 6.6% y/y and agriculture posting 0.8% y/y growth.
BCS GM warns that a number of industries continue to suffer from unfavourable external environments and high uncertainty domestically. Wholesale and retail trade posted 25.4% y/y and 8.8% y/y contraction in July, respectively.
Russia’s economy has bounced back from the initial shock of the seven packages of sanctions imposed in March. The country came close to a financial crisis in the first two months, but the fast action by the Central Bank of Russia (CBR) quickly stabilised the situation and since then Russia’s companies and government have worked hard to find new suppliers and supply routes to main business.
While the long-term consequences of the sanctions will clearly reduce Russia’s productivity and reduce its potential growth rate to around 1-1.5% in the short-term Russia Inc is earning more money from sky-high commodity prices than it has ever earned since the end of the Soviet Union.
The EU in the first half of 2022 paid Russia $52bn for oil, $24bn for natural gas and $5bn for coal leading to an all-time record current account surplus of $166bn – a $100bn more Russia had as a surplus in the first half of 2021, and that was also a record.
On the flip side the cost to Europe has been even higher. In total, European countries have spent about €280bn ($278bn) over the past year to mitigate the effects of the energy crisis on businesses and households, the Bruegel think tank has calculated: Germany €60.2bn), Italy (€49.5bn), France (€44.7bn), Great Britain (€44.3bn) and Spain (€27.3bn) allocated the most funds to support the population in the context of the energy crisis.
As winter approaches, tension and costs are only going to rise. Gazprom has reduced the gas flows through Nord Stream 1 pipeline to 10% of capacity and while Europe filled its storage tanks to 80% of capacity a month ahead of schedule by the end of August, the German tanks, for example, only hold enough gas to last two months should Russia halt gas flows completely during the winter. The energy crisis, in the form of very high energy prices, is very
6 RUSSIA Country Report September 2022 www.intellinews.com