Russia on track for 12% contraction ‘as consumer spending and manufacturing hit’


Timely indicators since its invasion of Ukraine last month suggest Russia’s economy will shrink by 12% this year, a leading consultancy has said.

Capital Economics said indicators such as consumer spending and manufacturing output suggest “Russia’s economic slowdown is likely to worsen in the coming months”, reflecting the effects of sanctions, inflation and the rising borrowing costs.

Liam Peach, an emerging markets economist at Capital Economics, cited soaring consumer prices, an estimated 20% decline in manufacturing in March and a collapse of cargo ships at its ports indicate that the national economy is badly affected.

“Overall, we are comfortable with our forecast of a 12% contraction in Russian GDP this year. However, the risks are more on the downside given the growing threat of tougher sanctions against the Russian energy sector and the possible ripple effects of a sovereign default on Russian businesses and the banking sector,” Peach wrote in a commentary.

Meanwhile, the German government is working on a financial aid program for companies suffering from the fallout from the war in Ukraine and economic sanctions against Russia.

The support measures, which are being drawn up by the economy ministry, will include a loan program from state-owned bank KfW as well as direct financial aid, according to a source.

The state would guarantee 90% of the liability claims of the KfW loan. A ministry spokeswoman said talks were underway.

Large companies deemed consistently relevant will be offered direct financial assistance, similar to the WSF Economic Stabilization Fund created during the coronavirus crisis.

However, the volume of this fund will be much lower and will be in the single-digit region of one billion euros.

In addition, medium-sized companies will be eligible to receive up to €300,000 each, distributed by the EU’s climate fund programme.

cost of war

Some of the biggest companies in the world continue to count the cost of war.

Shell will write down up to $5 billion (4.6 billion euros) following its decision to leave Russia, more than previously announced, as soaring oil and gas prices have boosted business activity in the first quarter, the company said.

After-tax writedowns of between $4 billion and $5 billion in the first quarter will not impact the company’s earnings, Shell said in an update ahead of its May 5 earnings announcement.

Shell, which has a market capitalization of around $210 billion, had previously said Russia writedowns would reach around $3.4 billion.

The increase is due to additional potential impacts on contracts, write-downs and credit losses in Russia, a Shell spokesman said.

Shares of Shell closed down about 1% in London trading.

• Additional Bloomberg and Reuters reports


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