Russia’s economy shrinks

In the first snapshot to fully capture the costs of the war for Russia, data released today showed that the gross domestic product fell 4 percent from April to June, compared with a year earlier.

The drop is the start of what analysts say will be a downturn that will last several years, my colleagues Eshe Nelson and Patricia Cohen report.

Despite imports drying up and sanctions blocking financial transactions to such an extent that the country was forced to default on its foreign debt, the fall in G.D.P. was not as severe as some had predicted.

This was in part because state coffers were flush with energy revenue as prices rose because of the war. But the economic toll is expected to grow heavier with time as Western nations turn away from Russian oil and gas, critical sources of export revenue.

Western sanctions sparked an exodus of hundreds of Western companies, cut off Russia from about half of its $600 billion in foreign currency and gold reserves and imposed strict restrictions on dealings with Russian banks.

Russia moved quickly in the days after the invasion to mitigate the impact of sanctions and was able, to some extent, to soften the blow. Still, Russia’s central back said today that it expected the economy to have a deeper contraction next year and not return to growth until 2025.

The outlook for the coming months looks bleak. Russian companies will need to rearrange their supply chains as imports seize up and businesses have trouble getting replacement parts for Western-made machines.

Prospects for the energy sector are also dimming. Oil output will fall further next year, and Russia will have to find buyers for about 20 percent of its oil.


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