BNE Intellinews, 2/5/25

Russia’s services and manufacturing sectors expanded at their fastest pace in a year in January, driven by improved demand conditions and a sharp rise in new orders, according to the latest Purchasing Managers’ Index (PMI) data from S&P Global. However, rising input costs and supply chain pressures weighed on business margins. (chart)

The seasonally adjusted S&P Global Russia Services PMI Business Activity Index rose to 54.6 in January, up from 51.2 in December, marking the strongest expansion in output in a year. The upturn was linked to “a sustained rise in new orders and more favourable demand conditions,” according to S&P Global.

The services sector’s performance was mirrored by Russia’s manufacturing industry, where the PMI increased to 53.1 in January from 50.8 the previous month, just above the 50 no-change benchmark. S&P Global report described the improvement as “significant overall”, noting that “the growth rate was the fastest since July 2024 and above average.”

Taken together the S&P Global Russia Composite PMI Output Index, which tracks both services and manufacturing, climbed to 54.7 in January from 51.1 in December. The overall expansion was the sharpest in a year, underpinned by “a faster rise in new orders” and “solid growth in private sector output.”

The strong January results come as a surprise in the context of predictions that Russia’s economy is cooling and many pundits have been predicting a wave of bankruptcies that could begin in the second quarter of this year. However, other pundits have argued that Russia’s economy is a lot more robust than it first appears, despite sky high interest rates and very sticky high inflation rates.

New business at service providers increased for the seventh consecutive month, with growth accelerating to its fastest pace in a year, reports S&P Global’s panelists. Companies attributed the rise to “a general improvement in demand conditions”, as well as a diversification of service lines.

The upturn in activity encouraged firms to increase staffing levels, with job creation recorded for a third successive month. However, employment growth was only marginal overall, as firms struggled with mounting backlogs of work. “The level of incomplete business rose at a solid pace,” S&P Global reported, citing ongoing pressure on capacity due to a strong influx of new orders.

High inflation remains a problem, despite the Central Bank of Russia (CBR)’s efforts to cool price growth using non-monetary policy methods. However, the regulator reported some successes in reducing borrowing, a major source of inflation in its January banking update. Tighter macroprudential restrictions have led to the first fall in consumer borrowing – mainly credit cards – where retail creditors paid off more loans than they took out in January for the first time in a year. Likewise, corporate borrowing fell by almost third (31%) in December, which is expected to reduce inflationary pressures as well. Mortgage lending is also down sharply after the sector was rocked by the end of a generous subsidy scheme last summer.

Nevertheless, despite robust demand, cost pressures continue to intensify in the service sector. Input prices rose at the fastest rate in a year, driven by higher supplier and transportation costs, as well as increased wage bills, according to surveyed firms.

Companies responded by passing higher costs on to customers, with selling prices rising at the joint-fastest pace in a year, alongside July 2024. “Firms commonly noted the pass-through of higher costs to customers,” the report stated.

However, managers remain optimistic on the outlook for this year, which is expected to be the toughest since the war in Ukraine began three years ago. Service providers reported the highest level of confidence since September, buoyed by expectations of stronger demand conditions and planned investments in new service lines and advertising, reports S&P Global.

Businesses continued to navigate inflationary pressures, with firms in both sectors raising prices to protect profit margins. “Selling prices increased at the sharpest rate since November 2023,” S&P Global said.

By Ben Aris, Intellinews, 2/21/25

Russian President Vladimir Putin said on February 21 that Western sanctions have played a “stimulating role” in Russia’s economic development, rather than bring it to its knees.

Domestic companies increasing relied on local scientific and technological expertise after they were cut off from technology sanctions that have largely failed. He noted that Russian firms had found domestic solutions that were often “more effective than their foreign counterparts”.

“External problems, sanctions, with all the challenges and difficulties, played an important, stimulating role for us. Russian companies are now increasingly turning to our scientists and receiving such assistance from them. Moreover, domestic solutions often turn out to be more effective than foreign analogues,” Putin said at the plenary session of the Future Technologies Forum, TASS reported.

Putin also announced that science funding will be increased to 2% of GDP. “It is critical to channel all additional resources to support exactly promising, breakthrough areas,” he said.

A VTsIOM poll this week found that most Russians agree and believe the war in Ukraine has reduced social inequality and made Russian society fairer for the first time since the fall of the Soviet Union.

Since the launch of Russia’s military campaign in Ukraine, attitudes have shifted partly thanks to the surge in state spending that has disproportionately benefited Russia’s poorest regions. In order to entice regular Russians to sign up for military service, average incomes have jumped and regional governments have been paying out enormous sign up bonuses that are several times higher than the average income. A study by the Bank of Finland institute for Emerging Economies (BOFIT) showed that regional retail deposits have grown fastest in Russia’s poorest regions.

At the same time, despite the high rates of inflation of about 10%, nominal wage increases have been rising even faster by around 12% a year, leading to a record growth in real disposable income that has fuelled a consumer boom in the last few years and created a new War Middle Class. Bank deposits and savings have swelled as a result.

While many Russians were against the idea of the invasion of Ukraine at the start of the war, now that it has started, most believe that at Russia should not lose what is widely seen as a proxy war with Nato. Patriotism is at an all-time high and Putin’s personal trust rating is currently at 80%, according to a survey conducted by the Public Opinion Foundation (FOM).

“When asked directly if they trusted Putin, 80% of participants responded affirmatively (no changes). The majority also endorsed of the president’s job performance (80%, no changes),” the service said, reports TASS. A total of 53% of those polled said they approved of the Russian government’s handling of the country (no changes), while 56% approved of Prime Minister Mikhail Mishustin’s performance (a 1% decrease).

Russia’s economy put in a better than expected 4.1% growth and growth for 2023 was also upgraded to 4.1%, Mishustin told Putin last week. However, the economy is now cooling and growth is expected to slow sharply this year.

Shortly after the extreme Western sanctions were imposed in the first month of the war three years ago, Central Bank of Russia (CBR) governor Elvia Nabiullina warned Russian companies that they would have to go back two or three generations of technology to keep their production lines running. However, that did not come to pass.

Russia’s economy was rescued by the “accelerated adaptability” of private companies, top Kremlin policymakers told St Petersburg International Economic Forum (SPIEF) last summer.

“Russia has developed antibodies [to the sanctions] and it has a perfectly healthy body. All we have to do now is develop some more muscles,” was how Russian Finance Minister Anton Siluanov described the situation.

Part of this success was Russia quickly found trade partners willing to act as middle-men to bypass sanctions and the import of technology fell only 2% by value in 2023 from the pre-war levels. But it was also due to Russian enterprises boosting investment and re-tooling their production lines, using technology from places like China that was not under sanctions. Russia is Europe’s manufacturing powerhouse and the level of technology needed is not the highest and so does not have to be exclusively sourced in the West.

“Accelerated adaptability” was the mot du jour at SPIEF. A CBR survey conducted in the autumn of 2022 found that only a tiny share of companies had found no solution to replacing banned goods. Trade via friendly third countries means that most of the products that disappeared in the first half that year were back in the stores by the end of the year. In March 2023, Putin remarked that “every cloud has a silver lining”, describing the restrictions as a step towards strengthening Russia’s economic and financial sovereignty.

In one example, Russian Deputy Health Minister Sergei Glagolev said earlier this month that the share of domestic production among drugs registered in Russia neared 80% in 2024, Interfax reported.

In recent weeks, reports have emerged suggesting the potential return of Western firms to Russia as a result of the unexpectedly warm tones at the opening session of the Russo-US ceasefire talks in Riyadh on February 18. Against this backdrop, Russian officials have signalled a selective approach to the re-entry of Western companies.

Western companies will be admitted to be in sectors without risks for the national economy, Russian Foreign Minister Sergei Lavrov said on February 21, but they need not be “discouraged from the Russian market,” the foreign minister added.

On February 20, First Deputy Prime Minister Denis Manturov announced that Russia would permit only companies it deemed beneficial to return to its market. He added the following day that he would be willing to consider allowing US company Boeing to restart purchases of Russian titanium, reported Interfax.

Speaking at the Future Technologies Forum the following day, Putin instructed the government to regulate the process for companies seeking re-entry, a sharp volte-face from the Kremlin’s previous policy of de facto appropriating leading Western business still operating in Russia.

By Uriel Araujo, InfoBrics, 2/6/25

Uriel Araujo, PhD is a writer and anthropology researcher with a focus on international and ethnic conflicts.

An Estonia court has recently convicted members of a neo-Nazi terrorist group called Feuerkrieg Division, which is known to plan attacks. Meanwhile the Slovak police issued a warning about a Nazi group plotting violent attacks. According to the Internal Security Service, such extremism has the potential to escalate and has been spreading over the last years.

Meanwhile, just last week the Slovak police issued a warning about a Nazi organization named “Valhalla” connected to violent attacks. I’ve written much about the reality of neo-Nazism and its role in post-Maidan Ukrainian politics, but there is a larger context: National-Socialist (Nazi) ideology and its variants remain a real problem in post-Soviet states in Eastern and Central Europe (including Baltic nations). This international far-right network has a presence in Western Europe, too, although it is particularly active in Central and Eastern Europe.

For instance, this year once again, as has been the case every February, hundreds of neo-fascist and neo-Nazi activists will soon gather in Budapest to commemorate the Nazi German 1945 failed attack against the Soviet army, calling it the “Day of Honour”. On that day German and Hungarian forces battled against Soviet troops. The event involves a music festival with various far-right bands, and the revenue is said to fund extremist organizations, including terrorist groups, as is often the case with such concerts.

In December last year a neo-Nazi musical event in Budapest co-organized by a “Nordic Sun Cultural Foundation” was raided by Hungarian authorities. One of the bands invited is named Der Stürmer, after the infamous anti-semitic German tabloid of the Reich period. It is part of the NSBM (National Socialist Black Metal) movement.

There is a recurring theme in all such groups and events, namely anti-Soviet speech, which translates itself into Russophobia. In a number of countries there are of course historical grievances involving some Soviet measures, and such politics of memory is employed to mobilize anti-Russian discourse and to fuel national and ethnic chauvinism.

In this context, Third Reich forces and its allies as well as Nazi collaborators are typically glorified as heroes in a sacred struggle against communism or Russian (and Jewish) domination, the way they often phrase it. The Soviet Union is thus equated with the Russian Federation.

In this context, monuments honoring Soviet soldiers of forces who fought against the Third Reich have been often vandalized. This happened recently in Kosice, for instance – Slovakia’s second-largest city. Such Slovakian monuments have also been painted with Ukrainian flags, interestingly enough. One could go on and on with similar cases.

The matter goes beyond radical groups, sometimes reaching state and official level. Such has been the case in Latvia, for instance, for many years. Every March 16, many Latvians parade the streets of Riga to celebrate their veterans of Second World War Two, who fought alongside Nazi forces against the Soviet Union. Albeit shocking to most of the Western world, this is rather common across Baltic countries: in 2019, for example, Cherrie Daniels, US diplomat, called on Lithuania to not glorify Holocaust collaborators. Such Waffen SS veterans were not just anti-Communists: they took part in massacring Jews.

It has been a huge controversy in Canada, as well. In 2018, Canadian public opinion was urging its government (which has soldiers based there) to denounce Latvia for such parades. Ironically enough, as recently as 2023 the Canadian parliament honoured Yaroslav Hunka, an elderly Ukrainian Canadian who fought in SS Division Galicia (Waffen-SS) of the Nazi Party. He proudly described having taken part in the struggle against Russia, drawing parallels with the ongoing conflict in Ukraine and got a standing ovation. The affair became a scandal.

The glorification of Nazi forces and collaborators and the attacks on the memory of those who fought against the Third Reich (including monuments) played a large part in the development of the tensions which escalated into the Donbass War, since the 2014 nationalist Maidan revolution in Ukraine. Ukraine in fact is an extreme case, where the far-right and even neo-Nazis, albeit a minority of voters, hold tremendous power, politically and also in the military and paramilitary realm (the Azov regiment being merely the most famous one).

The situation is contradictory to the point that a native Russian-speaking Jewish President, Volodymyr Zelensky, is literally hostage to ultra-nationalist militias and military, including Nazis, who are on the record stating, like Dmytro Yarosh, that Zelensky would end up “hanging on a tree on Khreshchatyk” if he ever “betrayed” Ukrainian nationalists by negotiating with Moscow to end the (Donbass) conflict.

It is no wonder Ukraine became a new hub for the far-right globally, as TIME magazine reported back in 2021. Moreover, the SITE Intelligence Group, a private organization that tracks extremist organizations, has warned about far-right militias in Europe joining Ukrainian nazis in their struggle. All the Nazi regalia and SS helmets routlined caught on camera among Ukrainian soldiers are quite real: those are not just fashion statements.

Post-Maidan Ukraine does not only fuel and promote neo-Nazism internationally – it also invites antagonism from competing ultra-nationalist forces. The chauvinistic nature of the current Ukraine regime, as I wrote, alienates its national minorities (not just ethnic Russian and pro-Russian ones) and thereby enhances tensions with neighboring countries such as Poland and Hungary, who in turn have their own problems with their own strands of irredentist ultra-nationalism.

To sum it up, radical anti-Russian feelings today are largely connected to an “alternative” pro-Nazi reading of World War II key events. If unchecked, these forces could unleash the total “maidanization” of Europe, a trend one can already see.

Reuters, 2/21/25

Summary

-Russia may concede frozen assets for Ukraine reconstruction, sources say

-Russia will demand some of the funds for territories it controls, sources says

-US and Russian officials met in Riyadh, not clear if frozen funds discussed

MOSCOW, Feb 21 (Reuters) – Russia could agree to using $300 billion of sovereign assets frozen in Europe for reconstruction in Ukraine but will insist that part of the money is spent on the one-fifth of the country that Moscow’s forces control, three sources told Reuters.

Russia and the United States held their first face-to-face talks on ending the Ukraine war on Feb. 18 in Saudi Arabia and both U.S. President Donald Trump and Russian President Vladimir Putin have said they hope to meet soon.

After Putin sent troops into Ukraine in 2022, the United States and its allies prohibited transactions with Russia’s central bank and finance ministry, blocking $300-$350 billion of sovereign Russian assets, mostly European, U.S. and British government bonds held in a European securities depository.

While discussions between Russia and the United States are at a very early stage, one idea being floated in Moscow is that Russia could propose using a large chunk of the frozen reserves for rebuilding Ukraine as part of a possible peace deal, according to three sources with knowledge of the matter.

Swathes of eastern Ukraine have been devastated by the war and hundreds of thousands of soldiers killed or injured on both sides while millions of Ukrainians have fled to European countries or Russia. A year ago, the World Bank estimated reconstruction and recovery would cost $486 billion.

The sources spoke to Reuters on condition of anonymity due to the sensitivity of the discussions and because discussions are only preliminary. The Kremlin declined to comment.

The idea that Russia may agree to using the frozen money to help rebuild Ukraine has not been previously reported, and may give an insight into what Russia is willing to compromise on as Moscow and Washington seek to end the war, at a time when Trump is pushing for U.S. access to Ukrainian minerals to repay Washington’s support.

Russia’s main demands to stop the fighting include a withdrawal of Kyiv’s troops from Ukrainian territory Moscow claims and an end to Ukraine’s ambitions to join NATO. Ukraine says Russia must withdraw from its territory, and wants security guarantees from the West. The Trump administration says Ukraine has unrealistic, “illusionary” goals.

Reuters could not establish whether the idea of using the frozen funds was discussed between Russia and U.S. counterparts in the Saudi meeting.

The Group of Seven stated in 2023 that the Russian sovereign funds will remain frozen until Russia pays for the damage it inflicted in Ukraine. Trump has said he would like Russia to return to the G7, a grouping of wealthy nations.

Russian Central Bank Governor Elvira Nabiullina said on Thursday the bank was not part of any talks on lifting sanctions or unfreezing of Russia’s reserves.

Russia has previously said plans to use the funds in Ukraine amounted to robbery.

The Ukrainian foreign ministry and the White House did not immediately respond to requests for comment. The British Foreign Office declined to comment.

“Nothing about Ukraine and the EU can be decided without Ukraine and the EU,” said Anitta Hipper, a spokesperson for the European Commission. She said the EU and member states were helping Ukraine strengthen its position ahead of any talks, including with a new round of sanctions on Russia.

Renaissance Capital lead analyst Oleg Kouzmin said the differences between the United States and Europe, which controls most of the assets, would complicate a lifting of the freeze.

“It would require the European side to fully back the current stance of the U.S. aimed at dialog with Russia,” Kouzmin said, calling such a scenario “very optimistic”.

TWO THIRD SPLIT?

Russia’s frozen sovereign assets have been the subject of intense debate in the West with some proposing it be essentially given to Ukraine through a complex “repatriation loan”, opens new tab.

One source with knowledge of the discussions in Moscow said that Russia could accept up to two-thirds of the reserves going to the restoration of Ukraine under a peace deal, provided there were accountability guarantees.

The rest could go to the Russian-controlled territories in eastern Ukraine that Russia now considers to be part of Russia, said the source.

Another source with knowledge of discussions said that Moscow would agree to using the money to rebuild Ukraine but that it was too early to say what the possible division might be. Two sources stressed that it was important to discuss which companies would get future contracts for reconstruction.

A different source, close to the Kremlin but not directly involved in the discussions, said that Russia would still demand the lifting of the freeze on the assets as part of gradual sanctions relief.

Several Western officials, especially in the German government and European Central Bank, have been reluctant to simply confiscate sovereign reserves, warning that such a move could face legal challenges and undermine the euro as a reserve currency.

Russian officials have repeatedly warned that the state confiscation of assets goes against free market principles, destroys banking security and erodes faith in reserve currencies. In retaliation, Russia has drafted legislation to confiscate funds from companies and investors from so-called unfriendly states, those that have hit it with sanctions. The bill has not yet been voted in Russia’s State Duma lower house.

EUROPEAN FREEZE

At the time the assets were frozen, Russia’s central bank said it held around $207 billion in euro assets, $67 billion in U.S. dollar assets and $37 billion in British pound assets.

It also had holdings comprising $36 billion of Japanese yen, $19 billion in Canadian dollars, $6 billion in Australian dollars and $1.8 billion in Singapore dollars. Its Swiss franc holdings were about $1 billion.

Russia reports its total gold and foreign exchange reserves as around $627 billion, including the frozen funds. The value of Russia’s frozen assets fluctuates according to bond prices and currency movements.

The bank’s biggest bond holdings were in the sovereign bonds of China, Germany, France, Britain, Austria and Canada. Russia’s gold reserves were held in Russia.

Around 159 billion euros of the assets were managed by Belgian clearing house Euroclear Bank as of early last year, Euroclear has said.

While the freezing of the funds has angered Moscow, some of Russia’s most outspoken war hawks have previously acknowledged Russia may eventually part with the frozen reserves, provided that the controlled territories stay within Russia.

“I propose a solution. They pay this money towards our purchase of those territories, those lands that want to be with us,” said Margarita Simonyan, head of the Russian state broadcaster RT, in 2023.

The Russian-controlled territories of Ukraine account for about 1% of Russia’s gross domestic product, but some economists believe that their share could grow quickly if they remain with Russia when the war ends.

The regions already provide around 5% of Russia’s grain harvest.

By Kyle Anzalone, Libertarian Institute, 2/24/25

President Donald Trump’s Middle East Envoy, Steve Witkoff, explained that talks on ending the Ukraine war are in the Istanbul Protocol Agreement framework. That protocol refers to a deal that was nearly signed between Kiev and Moscow that would have ended the war in Ukraine within a few months. 

Witkoff gave multiple interviews on Sunday, discussing ongoing negotiations about the Ukraine War. He told CNN that a deal was “very close” and could be completed in the coming week.

Witkoff said the current talks follow the Istanbul Protocol Agreement. “There were very, very what I’ll call cogent and substantive negotiations framed in something that’s called the Istanbul Protocol Agreement.” He continued, “We came very, very close to signing something, and I think we’ll be using that framework as a guidepost to get a peace deal done between Ukraine and Russia, and I think that will be an amazing day.”

In March and April 2022, the first months after the Russian invasion, US allies Israel and Turkey hosted talks between Ukraine and Russia. In Istanbul, the two sides agreed to the outline of an agreement. 

Under that deal, Russia would withdraw from territory seized after the invasion in exchange for Ukrainian neutrality and limits on its military. In addition, Kiev would recognize Crimea as Russian and its Western backers would lift sanctions on Moscow. 

However, Washington and London did want to end the war so soon after the invasion and promised Kiev to provide Ukraine with all the support it would need to win the war. At the time, some members of NATO saw the war as an opportunity to use Ukraine to weaken Russia. 

In April 2022, then-UK Prime Minister Boris Johnson traveled to Kiev and informed Ukrainian President Zelensky that he would not receive Western support if he signed the deal with Russian President Vladimir Putin. 

In the following two years, Russia has annexed four additional regions of Ukraine. It is unclear how the current deal would differ from the initial Istanbul Protocol Agreement, as Putin has said Russia will not return annexed territory. Since talks broke down, at least hundreds of thousands have died in the conflict, with President Trump asserting the true death toll is in the millions. 

On Monday, Trump indicated he would be willing to lift sanctions on Moscow, or at least begin to normalize the economic relationship between the superpowers, as part of a deal to end the war in Ukraine. “I am in serious discussions with President Vladimir Putin of Russia concerning the ending of the War, and also major Economic Development transactions which will take place between the United States and Russia,” Trump wrote on Truth Social. “Talks are proceeding very well!”

US and Russian offices are preparing to meet for another round of talks later this week.