Russian economy shrinks 4% year-on-year in second quarter as sanctions weigh

This content was produced in Russia, where law restricts coverage of Russian military operations in Ukraine.

MOSCOW, August 12 (Reuters)Russia’s economy shrank 4.0% year-on-year in the second quarter of 2022, the first full quarter of what Russia calls a “special military operation” in Ukraine, preliminary data from the Federal Statistics Service Rosstat revealed on Friday. .

The economy plunges into recession after Moscow sent its armed forces to Ukraine on February 24, triggering sweeping Western restrictions on its energy and financial sectors, including a freeze on Russian reserves held abroad, leading to dozens of ‘Western companies to exit the market.

Rosstat did not provide further details, but analysts said the contraction was caused by weak consumer demand and the aftermath of sanctions.

“The June data suggests that the contraction of the Russian economy appears to have bottomed out as the situation in some industries stabilizes,” said Sergey Konygin, an economist at Sinara Investment Bank.

The contraction in gross domestic product in the second quarter was not as pronounced as expected. Analysts polled by Reuters had on average expected GDP to shrink 7% year-on-year in April-June after rising 3.5% in the first quarter.

Central bank analysts expected GDP to contract 4.3% in the second quarter, saying it was on track to fall 7% in the third quarter. The central bank expects the economy to begin to recover in the second half of 2023.

Given the highly unstable political environment, official forecasts regarding the depth of the Russian recession vary.

The Economy Ministry said in April that gross domestic product could fall by more than 12% this year – after growing 4.7% in 2021 – in what would have been the biggest contraction since the mid-1990s. 1990.

But the forecast has since eased as Russia pushes back on restrictions.

The central bank had predicted in April that GDP would contract by 8-10%, but last month it revised that figure to predict a contraction of 4-6%.

“GDP contraction will bottom out in the first half of 2023,” Central Bank Vice President Alexei Zabotkin said on Friday. “The economy will move towards a new long-term equilibrium.”

(Reporting by Reuters; Editing by Kevin Liffey)

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