Intellinews, 7/1/22

The seasonally adjusted S&P Global Russia Manufacturing Purchasing Managers’ Index (PMI) was back in the black in June, posting 50.9, in line with 50.8 registered in May, as Russia’s economy stabilises after the initial shock of Western sanctions starts to wear off.

Any result above the no-change 50 represents an expansion in activity. The positive result signals “a slight upturn in the health of the Russian manufacturing sector midway through 2022,” S&P said in a note. The rate of expansion was also close to the long-run series average, the consultant added.

The positive manufacturing result comes on the back of the latest RosStat results that showed Russia’s economy was stable, but various sectors have been deeply wounded. Automotive production, for example, has completely collapsed with production down 97% in May. However, that was offset by growth in other sectors, mostly raw materials, and especially oil production, which returned to growth in May on the back of high global demand.

June’s PMI data signalled a marginal improvement in operating conditions across the Russian manufacturing sector, amid a return to growth in new orders, S&P said.

“Nonetheless, output continued to decline amid a further steep fall in exports and shortages of raw materials,” S&P said.

Inflation also remains a problem. The CBR doubled the prime rate to 20% only days after the invasion of Ukraine to head off inflation and instability in the exchange rate and the move seems to have been effective as the regular has cut rates four times since then to bring the rate back to the pre-war 9.5% on June 10 as inflation pressures rapidly eased. Analyst expect the CBR to continue to cut rates as the focus switches from containing inflation to promoting growth.

S&P reports its panellists are still seeing price rise pressures, due to input price rises stemmed from hikes in imported material costs, which have been affected by sanctions.

“That said, the rate of cost inflation eased to the slowest since February 2020, which fed through to the first fall in output charges since March 2017,” S&P added.

Inflation in May remains at a high 17.1%, putting pressure on the cost of living and leaving Russia with a deeply negative real interest rate, but economists believe it will keep falling in the coming months and the CBR is predicting inflation will return to its target rate of 4% by 2024.

Unemployment has been another bright spot, with RosStat reporting the official jobless rate has fallen to a post-Soviet low of 3.9% in May. However, analysts believe the low rate is artificial, as the state is preventing state-owned companies from sacking employees made idle by the sanction-related problems. Exiting foreign companies – around 200 foreign companies have either left the Russian market or suspended operations according to a study by Yale – have largely kept their local employees on the payroll for the meantime. Foreign-owned companies account for a total of about 10% of the Russian workforce. During the coronavirus (COVID-19) crisis unemployment rose to a peak of 8.1%, and unemployment is expected to rise to at least that level later in the year if state support is withdrawn.

In the meantime, S&P’s panellists report that employment was actually growing in June as firms stepped up their hiring activity to meeting new orders and domestic demand as imported goods disappeared from the shelves in a low-level import substitution drive.

“Longer-term, sentiment was also buoyed by greater new order inflows as business confidence ticked up to the highest since February,” S&P said. “Supporting the headline figure was a renewed rise in new orders received by Russian manufacturers during June. The increase in new sales was marginal overall but followed four successive monthly contractions. Where new order growth was noted, firms linked this to greater domestic demand and the agreement of new projects.”

An informal survey carried out by academic Maria Snegovaya of how sanctions have affected people’s everyday lives found that while the sanctions were noticeable, most ordinary Russian reports that their lives have not changed much.

“There are sharp regional disparities. Moscow and St. Pete are doing much better than the regions. This is reminiscent of Soviet times,” Snegovaya said in a social media post. “Both choice and quantity of goods are declining, substitution (if at all) mainly with lower quality products. Substituted either with lower-quality domestic or Chinese goods. Rising prices on almost everything. Plenty of closed stores. Worst situation is with car spare parts, imported appliances and clothes. Groceries are more or less OK, especially seasonal ones. However, the situation is not critical, many people in big cities do not even notice any change.”

Obviously exports have been one of the categories to be most affected by sanctions, S&P’s panellists confirmed, as export orders contracted further from the previous month. “The rate of decline was the slowest since February but remained steep, and was attributed to the impact of sanctions and the suspension of contracts with customers in Europe,” S&P said.

As bne IntelliNews reported in a recent blog, the West’s sanctions regime has significant leaks that have allowed Russia to continue to export significant amounts of oil in particular so that the state is currently running its largest current account surplus on record. However, sanctions have dramatically curtained imports, especially of spare parts and technology, so that “the only thing that Russia is importing at the moment is money”, many commentators on social media have quipped. That has caused the ruble to rise dramatically in value against the dollar, giving Russia a nasty dose of the Dutch Disease.

Output levels also decreased again in June. The pace of decline quickened from May and was solid overall, as firms stated that challenges sourcing raw materials due to shortages and higher imported input costs had hampered efforts to step up production.

Finally, output expectations regarding the year ahead across the Russian manufacturing sector remained upbeat in June. The degree of confidence was the strongest since February amid hopes of greater client demand and a stabilisation in economic conditions.

By Dmitriy Kovalevich, New Cold War, 6/29/22

Reporting from Ukraine, Dmitriy Kovalevich the New Cold War’s regular contributor and analyst, describes the catastrophe unfolding on the frontline and the stark realities behind the recently granted EU candidacy status.

During June, Ukraine experienced the fourth month of the war, which has been marked by a sharp increase in the losses of Ukrainian military personnel. Estimates of the losses vary, but at the beginning of the month, President Zelensky said that 100 soldiers were being killed every day; while Mikhail Podolyak, the head of his Office, spoke of 200 being killed daily, and the head of the Zelensky ‘Servant of the people’ party faction, David Arakhamia, announced that about a thousand were killed and wounded daily.[1]

The daily figure reported by the Russian military is even larger. Considering that during military conflicts it is usual for the losses of the enemy to be exaggerated, while underestimating one’s own, we can conclude that the truth lies somewhere in the middle.

Increasing front line losses, draftees being seized from streets 

Against the background of growing losses in Ukraine, about a million people have already been drafted. As a rule, these people are untrained and quickly die under massive artillery fire. The drafted Ukrainian infantrymen complain that they are used at the front as ‘bait’ for the Russian military during the counter-battery fight.[2] Virtually unarmed, they are thrown into the front lines, waiting for the Russians to detect them with drones, and hit them with heavy artillery and aircraft, after which Ukrainian artillerymen can detect Russian artillery positions. Such a tactic in itself leads to huge losses, which are replenished due to the fact that the police began to capture males aged 18 to 60 on the streets of cities on a massive scale.[3]

Men are literally seized on the streets, so many enterprises in the country that are not related to law enforcement agencies and defense have stopped working. Men simply try not to go outside; only their wives, daughters or mothers go to shops, pharmacies or banks.

Ukrainian border guards report that about a hundred men are caught every day trying to leave with forged documents, and about 30 more are caught daily trying to flee across the border through forests or swim across rivers.[4] The number of those who managed to escape successfully is naturally not included in the statistics.

With this mass capture of males in June, solidarity groups have formed in every city. Using anonymous Telegram channels, citizens provide tip offs as to exactly where or on which street they see police ambushes, so that Ukrainian men who do go out can avoid these locations.[5] Police ambushes are also monitored with the help of small drones. Many are gratified only by the fact that the police themselves are reducing in numbers – vast numbers of ordinary policemen are also being thrown into the trenches.

The situation on the ground

At the end of June, the Ukrainian military lost control over a number of cities in Donbass, in particular in the Luhansk region. Russian troops and the army of the LPR captured Severodonetsk, while the last city controlled by Kyiv in the region, Lisichansk, was surrounded. Both cities, like Mariupol, played an important role in the economy of Ukraine as industrial centers. The General Staff of Ukraine officially calls the retreat and the loss of cities “maneuverable defense.”[6] According to the Russian military, hundreds of mercenaries from various European countries and North America fought in this area, a significant proportion of whom have been killed or gone missing.

Kyiv loses in terms of firepower, so it has to put a stake on lightly armed infantry deployed in the trenches against hundreds of powerful long-range artillery systems.[7] The supply of Western weapons in this regard does not play a significant role. According to the Ukrainian military, they need many more heavy weapons and people, at a magnitude that exceeds both the capacity of Western countries and the Ukrainian population.

Reality behind granting of EU status

Against the backdrop of defeats on the battlefield, the Ukrainian authorities presented as their ‘victory’ at the end of June, the granting by the EU of candidate status to Ukraine and Moldova. By itself, this decision will not play any role for ordinary Ukrainians, but allow the Ukrainian authorities to receive large sums from the EU budget for various reforms. As Ukraine’s political scientist Ruslan Bortnik explains: “We are talking about very big money that Ukraine can count on – a ‘candidate’ fund, big sums of money. At one time, at the candidacy stage, Poland received about 80 billion euros from it – Ukraine can count on much larger sums.”[8]

But Turkey, for example, has had candidate status for 23 years. North Macedonia and Albania have also been held in this status for many years. Commenting on the decision of the European Parliament, Prime Minister of Albania Edi Rama on June 23 called it “a completely fraudulent process,” where “decisions are postponed indefinitely under far-fetched pretexts.”[9]

At any moment, the status of a candidate can be revoked, but for the EU authorities this decision was important, precisely as a symbolic gesture, since the Ukrainian authorities, losing on the battlefield, needed at least some positive informational occasion. The main thing that is important to understand about joining the EU is that it is impossible while the country is at war. This has been repeatedly stated by European leaders. Kyiv has promised to fulfill all the conditions by the end of the year. And here it is necessary to understand that in this context, this is either just an empty promise from Kyiv, or it is ready to give up at least a quarter of its territory, unless, of course, the Russian authorities agree to this.

Irreconcilable differences, global food crisis

In June, Western leaders once again showed some disagreement about the prospects for peace in Ukraine. If EU leaders like France and Germany want an end to hostilities and sanctions as soon as possible, the Kyiv authorities are under the direct control of London. Britain’s position is the most irreconcilable, and Boris Johnson has even become the idol of Ukrainian nationalists and neo-Nazis, as the British authorities regularly encourage them, describing the prospects for the imminent collapse of Russia and the victory of Ukraine in the future.

At the same time, Kyiv and London, in order to attract Third World countries to their side, continue to repeat in unison that the actions of the Russian Federation in the Black Sea threaten a global food crisis. Foreign ships and tons of grain are blocked in the ports of Ukraine, causing an increase in grain prices. However, in June the Russian Federation made several announcements regarding the opening of humanitarian corridors, but not a single ship left. The President of the Russian Federation said that it was not the Russians who had mined the ports. The Ukrainian side claims that the only way to unblock the ports is through military force, in effect, by attempting to draw the NATO fleet into a conflict with the Russian Federation.

In June, negotiations were held twice in Turkey, at which it was decided to open humanitarian corridors, but each time, under pressure from Liz Truss, Britain’s Foreign Secretary, Ukraine refused to agree to them. In reality, Kyiv is pursuing a policy of blackmail, the purpose of which is to set the countries of Africa and Asia against the Russian Federation, seeking to isolate Russia, even through starvation in these countries. Yet, it is worth noting that such a policy has not borne fruit, and the President of Senegal and the head of the African Union, Macky Sall, called on Ukraine to clear the Odessa ports of mines in order to resume grain exports.[10]

Regrettably, it should be noted that at the beginning of July Ukraine has not come one step closer to peace, and the global economic crisis will only grow during the coming months. The daily death of hundreds of people on the battlefield is being justified in the West as a desire to improve Kyiv’s negotiating position, although any remotely adequate military expert admits that they will only continue to get worse. Nevertheless, with the current situation absolutely nothing depends on Kyiv.

https://www.youtube.com/watch?v=K0y2I2kxi4M

Link here.

Link here.

https://www.youtube.com/watch?v=E8irsSCl6Co&list=LL&index=3

From Eva Bartlett’s YouTube channel. Link here.