almost 2 years ago • 3 mins
Russia’s made its bed: a major financial institution said on Thursday that the country’s economy will shrink 10% this year.
What does this mean?
Russia’s decision to invade Ukraine has had serious ramifications for its economy, with one-time frenemies now going all in on crippling sanctions. They've been continuing to reduce their purchases of the country’s oil and natural gas, and foreign investors with money to burn have been boycotting the country altogether. The Economic Bank for Reconstruction and Development (EBRD) thinks it’s having the desired effect: it’s expecting the Russian economy to shrink by 10% this year, And even if the country does agree to a ceasefire sometime soon, it might not help: the EBRD thinks sanctions will stick around to limit the country’s economic growth for the next few years.
Why should I care?
Zooming in: It’s everybody’s problem.
Of course, Russia’s invasion is already having far-reaching consequences around the world. And according to the World Bank, it’s the poorest countries that are set to take the brunt of the damage. In fact, the organization reckons soaring prices of products like wheat could push millions into poverty, and some developing countries to a point where they can’t afford to pay their debts. EBRD agrees, and warned that north African economies and Lebanon – which buy a lot of wheat from Russia and Ukraine – are among the most exposed.
The bigger picture: Thanks for nothing, OPEC.
Sky-high oil prices are also poised to stunt economic growth around the world, and yet OPEC – a group of oil-producing nations – said on Thursday that it wouldn’t be increasing its supply any more than already promised. It’s a good job, then, that the US is releasing 180 million barrels of oil – the largest draw from its reserves in its 45 year history – over six months starting in May. That’s not a long-term fix, but analysts think it could bring down prices in the short term.
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Data out on Thursday showed that Chinese business activity fell last month, as the country’s government forces its own workers to clock off early.
What does this mean?
Just when Chinese companies thought they were back to business, a surge of Covid cases led to tighter restrictions across the country. That zero-tolerance attitude is having an impact: the latest business activity survey – which asks the country’s managers how busy their firms have been that month – showed that the services industry shrank last month. So did the manufacturing sector, which lost workers to quarantine and international customers to war-related belt-tightening. And the worst could be yet to come: Shanghai – home to the world’s biggest shipping container port – went into lockdown in late March, and economists think that it could cripple the country’s companies for months to come.
Why should I care?
Zooming in: Savers are a drag.
It’s hardly a surprise that the services sector saw a drop-off: survey data out from the People’s Bank of China this week showed that 55% of respondents preferred saving money to spending or investing it last quarter – the highest proportion for almost 20 years. That doesn’t bode well: consumer spending makes up more than half of China’s economy, so a drop in spending could stunt economic growth even more.
The bigger picture: China isn’t giving up.
At least China has a plan to get things back on track: the government said this week that it’s going to roll out measures to support the economy, including issuing more “special government bonds” to help fund infrastructure projects. Economists are also expecting the country’s central bank to cut interest rates, which should get the country spending again. It had better hope so: it’s aiming to grow its economy by 5.5% this year.
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