over 1 year ago • 3 mins
Reports out this week suggest Russia’s hiding a scary economic outlook behind a strained smile.
What does this mean?
Russian officials would have you believe their sanction-loaded economy is doing just fine and dandy, but the cold, hard paperwork tells a different tale. A (seemingly not very) confidential document warns sanctions could cause a long recession, especially if more countries join Europe – Russia’s main export market – in boycotting the country’s goods and energy. What’s more, Russia can’t even import replacement parts for its western equipment, which’ll stunt its growth by forcing it to rely on less advanced alternatives from Asia instead. That’s the brawn gone, and the brains might follow: the report also estimates that 200,000 tech specialists could flee to unsanctioned soil by 2025. No wonder, then, that two of the report’s three scenarios show the economy shrinking even faster next year to bottom out 12% lower than in 2021. What’s more, they predict the economy could take over a decade to recover.
Why should I care?
Zooming in: Cross your fingers.
Plucky Russia’s still shooting for its “target scenario”, which would see its economy bounce back pretty quickly. There’s hope: the report suggests measures that could give the economy a leg up. Not much hope, though: the country’s already tried many of those steps over the last decade, and they couldn’t stop its economy stagnating before sanctions came in – let alone in an environment like today’s.
The bigger picture: Heavy metal.
Russia’s metal producers are really taking a beating: they’re already losing nearly $6 billion a year as restrictions take their toll, and metal prices are slipping lower as countries cut their hauls in the face of a global recession. That’s not great for anyone: copper and steel are now languishing about 30% and 50% below their highs from earlier this year, and their multi-purpose bragging rights tend to mean they reflect global economic health pretty well.
Keep reading for our next story...
The UK’s new prime minister drafted plans this week to help Brits with mounting energy bills.
What does this mean?
The UK energy price cap – which limits how much suppliers can charge their cash-strapped customers – is due to jump 80% in October. At least the prime minister – newly appointed on Tuesday – was quick to draft plans that fix the typical British household’s annual energy bills around the current level of £1,970 ($2,300), effectively doing away with the existing price regime. Energy suppliers would charge households a reduced rate instead, with the government paying the difference between their new income and what they'd have made before – a move estimated to cost £130 billion ($150 billion) over just 18 months. And since that also means energy companies can skirt the once-touted windfall taxes on their massive profits, you’d be forgiven for forgetting everyday Brits were the intended winners here.
Why should I care?
The bigger picture: We can’t have anything nice.
The idyllic plan has some serious downsides. For one, the government’s likely to borrow the cash to fund the plan, adding to its £2.3 trillion ($2.7 trillion) of national debt – the cost of which is only increasing with interest rates. And for another, analysts believe some shifty energy sellers could hike their prices for suppliers because they know the government will have to pay, increasing costs even more as a result. That’ll be why some economists doubt the grand plan can be sustained beyond winter, and believe it could all end up in higher taxes in the long term to pay it all off.
For markets: Show me the money.
Businesses can hardly wait: the plan should fatten up customers’ wallets, meaning they’re more able to splash the cash during the money-making holiday shopping season. So maybe that’s why the UK's FTSE 250 index rose 2% after the news, with domestically-focused retailers like Marks & Spencer and Greggs notching 5% and 7% jumps respectively.
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