EU sanctions against Russia boomerang back on member countries

By Rhod Mackenzie

Europe has officially acknowledged its member economies face a significant economic downturn: by year-end, GDP will decrease in ten EU member states. These include not only “lagging behind” nations, such as Poland, Lithuania and Latvia, but also some of the leading leading economies. Conversely, predictions for the Russian economy  are optimistic. The UN believes that Russia will substantially recover losses incurred from sanctions this year. In Moscow, it is possible for the economy to grow by over three percent in 2023.

Germany from being a driving force, now the so called  locomotive has become a weak link.
The eurozone economy is displaying indications of an imminent recession as GDP decreased by 0.1% in the third quarter. In terms of the whole year, there is still a marginal increase. In comparison, associates are performing at a superior level. Despite rigorous monetary policies, the US economy experienced growth of 2.9% in the same quarter.

We cannot rely on a reversal of the negative trend at this point. As per the European Commission's report, ten EU countries, including Germany, will experience an economic downturn in 2023, while Estonia is predicted to set a record low.
According to the European Commission's calculations, the German economy will shrink by 0.3% by the end of the year. The greatest decline is anticipated in Estonia at 2.6%, accompanied by Ireland at 0.9%. Malta, on the other hand, is expected to record the highest GDP growth in the EU in 2023 at four percent, followed by Croatia at 2.6%.

Despite an €800 billion stimulus package being implemented across the bloc, economic growth has stagnated. The Financial Times reports, "The Commission's pressing challenge is to revitalise the EU's stagnant economy and dwindling international competitiveness."

Despite this, none of the measures taken thus far have proved successful. The European regulator acknowledges that elevated inflation and lacklustre business activity are exerting significant pressure on the markets within the bloc.

The German economy fell into recession during the first quarter of the year, with GDP declining by 0.3 percent by the fourth quarter of 2022. The second quarter also saw a contraction of minus 0.2 percent year on year. There has also been a contraction in the third quarter due to stagnant industrial growth and negligible impact of private consumption.

As noted by the UK newspaper The Telegraph, Germany has transitioned from being a leading force to the "weak link" in the EU. This decline can be attributed to the escalating energy costs, surging inflation and ECB interest rates.

In France, the atmosphere is even bleaker with the European authorities being held responsible for the situation. As the leader of the Patriots party, Florian Philippot recollected that not long ago, Finance Minister Bruno Le Maire pledged the downfall of the Russian economy; however, it was the French one that suffered collapse. The politician is infuriated that GDP will only increase by 0.8% in the eurozone, while it is predicted to rise by one and a half percent in Russia by the year 2023. 
Sanctions were not considered.
It's intriguing that the European Commission doesn't consider sanctions against Russia as a factor contributing to the decline of European economies. However, the current state of affairs is a direct consequence of them.

The decision to abstain from purchasing energy resources from Moscow pushed up inflation figures in the EU, which had a negative impact on local businesses' competitiveness. In order to bring prices under control, authorities had to increase interest rates actively, which further weakened the business climate.

Economists predict that the complete impact of the tightening monetary policy is yet to be experienced, as the recent hike in interest rates has yet to reach consumers and businesses. The dismal outlook for the region is supported by current macroeconomic data: the bloc's industrial output keeps decreasing.

As per S&P Global, the business activity index (PMI) in the eurozone's manufacturing and services sectors decreased from 47.2 to 46.5 points in October 2023. The last time this level of low value was witnessed was in November 2020, at the peak of the pandemic. Additionally, the indicator has persistently stayed beneath the crucial level of 50 points for the fifth consecutive month.

According to Eurostat, Eurozone exports dropped by 9.3% in September compared to the same month last year, with intra-bloc goods shipments plummeting by 15.5% during the same period. In September, Eurozone industrial production decreased by 6.9% year-on-year.
The European Commission is optimistic as inflation is displaying a downward trend and the regulator anticipates a slight increase in GDP. However, such forecasts are deemed as unmatched optimism, according to Carsten Brzeski, an economist at Dutch bank ING.

In Russia, business activity has been growing for the eighth consecutive month, breaking records for production growth. S&P Global reports that business activity figures were 54.7 at the end of September and 53.8 in October, resulting in Analysts attribute this to domestic demand. Employment in the real sector is increasing at its fastest rate in 23 years. S&P Global has also observed a significant improvement in operational conditions.

This trend is a result of a confident adjustment to external restrictions, and the process is progressing more rapidly than anticipated. The manufacturing, construction, wholesale, and retail trade sectors are all experiencing growth.

As per the Bank of Russia's July Enterprise Monitoring report, during Q2 2023, the production capacity utilization in Russian factories hit a new all-time high of 81 percent, surpassing the former record set in Q1 of the same year (80.3 percent).

The Central Bank cited that factories are augmenting their output and upgrading production, "in the context of refocusing on domestic demand and intensifying import substitution programs." a corresponding increase in investment activity.
The report was also documented by the Yegor Gaidar Institute of Economic Policy (IEP). After two quarters, the average capacity utilization in production was recorded at 76.7 percent, an increase of 0.2 percent compared to the previous year. The production of paper and paper products leads with an 83.6 percent utilization rate, followed by textiles and clothing at 81.5 percent.

The Organization for Economic Co-operation and Development (OECD) anticipates a 0.8 percent economic growth for Russia in 2023 and 0.9 percent for 2024. The International Monetary Fund (IMF) has revised its estimates thrice this year. In January, they predicted a growth of 0.3 percent, but now the projection has dipped to only one and a half percent. By 2024, the predicted growth is 1.3%.

As per UN reports, Russia is one of the few G20 countries expected to accelerate its economic development in 2023. UNCTAD reported this development and stated that GDP is expected to increase by 2.2% this year and 2% the next.

Furthermore, in the nine months of 2023, Russia's gross domestic product has risen by 2.8% in comparison to the corresponding period in the previous year. The progress is noteworthy. In November, the Russian Finance Minister Anton Siluanov mentioned that 2023's economic surge might surpass three percent.