Europe at risk of recession amid concerns Russia could cut gas supplies
Jasper Jolly
Europe faces a rising risk of recession because of rising oil and gas prices amid concerns that Russia could turn off supplies completely, economists have said.
Europe’s economy will be hit by a variety of factors including falling demand in the US – its biggest export market – the continued fallout from Russia’s invasion of Ukraine and related increases in food and energy prices, according to Nomura, a Japanese investment bank with significant operations in London.
Nomura said it expected the European economy to start contracting over the course of the second half of 2022 and for the recession to continue until the summer of 2023, with a total decline of 1.7% of GDP.
Europe is struggling with “conditions that are very much global in nature (surging energy prices and inflation, rising geopolitical risks and uncertainty), which leads us to believe that European economies will suffer the same fate – recession – as the US,” wrote George Buckley, a Nomura economist.
The UK may seize the assets of Russians in the UK in order to give them to Ukraine, a concept previously supported by Canada.
UK Foreign Secretary, Liz Truss, is set to tell a recovery conference in Lugano, Switzerland, on Monday that the UK will “do everything possible to ensure Ukraine wins the war and recovers”.
She will also announce plans to host next year’s recovery conference as the government commits to a Marshall Plan-style programme, echoing the one used to rebuild Europe after the Second World War.
“The UK will do everything possible to ensure Ukraine wins the war and recovers. We need to be in this for the long haul,” she is expected to add.
Military support for Ukraine is not enough. We must make sure we work together to help @ZelenskyyUa rebuild his country.
Discussed with OECD Secretary-General @MathiasCormann how the UK and OECD can best support Ukraine’s reconstruction and strengthen its economic security. pic.twitter.com/xZKaa25S0G
— Liz Truss (@trussliz) July 1, 2022
Truss told MPs last week she was supportive of the idea that the government could seize frozen Russian assets in the UK and redistribute them to victims of Russia’s war in Ukraine.
She said: “I am supportive of the concept. We are looking at it very closely. The Canadians have in fact just passed legislation This is an issue that we are working on jointly with the Home Office and the Treasury, but I certainly agree with the concept. We just need to get the specifics of it right.”
She said the initiative would “most probably” need legislation but not necessarily.
The funds seized could be supplied either to individuals in a form of reparations or to the Ukrainian state. At present the UK can suspend Russian assets under the Economic Crime Act for 56 days and roll over the suspension for a further 56 days. In that period the owner of the asset cannot benefit from the asset in any way.
The president of Belarus and Vladimir Putin’s closest ally says his ex-Soviet state stands fully behind Russia in its military drive in Ukraine as part of its longstanding commitment to a “union state” with Moscow.
Addressing a ceremony marking the anniversary of the second world war liberation of Minsk by Soviet troops, Alexander Lukashenko said he had thrown his weight behind Putin’s campaign against Ukraine “from the very first day” in late February.
Today, we are being criticised for being the only country in the world to support Russia in its fight against Nazism. We support and will continue to support Russia.
And those who criticise us, do they not know that we have such a close union with the Russian Federation?…That we have practically a unified army. But you knew all this. We will remain together with fraternal Russia.”
Lukashenko has allowed Russian troops to use his country’s territory in invading Ukraine. Some Ukrainian officials suggest Belarus could soon become directly involved in the conflict.
Ukrainian President, Volodymyr Zelenskiy, said the Belarusian leader’s statement amounted to a “signal”, with his actions to be watched carefully.
Zelenskiy, quoted by Ukrainian media, told reporters in Kyiv that Lukashenko’s comments were a “dangerous” development.
Lukashenko’s statement about a unified army with Russia is, above all, dangerous for the Belarusian people.
He must not drag Belarus into a Russian war of invasion against Ukraine. I believe this is a dangerous signal. And I believe that we will all see the results of this signal.”
With harvest under way, Russia’s invasion continues to have a devastating impact on Ukraine’s agricultural sector, the UK Ministry of Defence added in its latest report.
The war has caused major disruption to the supply chains of seed and fertiliser which Ukrainian farmers rely on.
Russia’s blockade of Odesa continues to severely constrain Ukraine’s grain exports. Because of this, Ukraine’s agricultural exports in 2022 are unlikely to be more than 35% of the 2021 total.
Following its retreat from the Black Sea outpost of Snake Island, Russia misleadingly claimed that ‘the ball is now in Ukraine’s court’ in relation to improving grain exports.
In reality, it is Russia’s disruption of Ukraine’s agricultural sector which continues to exacerbate the global food crisis.”
Russia’s focus will switch to capturing Donetsk, UK MoD says
Russia’s focus will now “almost certainly” switch to capturing the eastern region of Donetsk after claiming victory over the city of Lysychansk, the UK Ministry of Defence has said.
Ukrainian forces have withdrawn from Lysychansk, a frontline city in the Luhansk region, likely falling back to prepared defensive positions, the latest British intelligence report reads.
Fighting in and around the city – the last remaining major population centre in Luhansk under Ukrainian control – has intensified over the past week with Russian forces making steady progress, the ministry adds.
Russia’s focus will now almost certainly switch to capturing Donetsk Oblast, a large portion of which remain under the control of Ukrainian forces.
The fight for the Donbas has been grinding and attritional and this is highly unlikely to change in the coming weeks.”
Leaders gather to work out ‘Marshall Plan’ to rebuild Ukraine
Leaders from dozens of countries, international organisations and the private sector are set to gather in Switzerland today to hash out a ‘Marshall Plan’ to rebuild war-ravaged Ukraine.
Ukrainian President, Volodymyr Zelensky, who will take part virtually, earlier warned that the work ahead in the areas that have been liberated alone was “really colossal”.
“And we will have to free over 2,000 villages and towns in the east and south of Ukraine,” he said.
It is estimated that more than 120,000 homes in Ukraine have been destroyed during the Russian invasion, creating the need for billions in income to restore the country economically and make it a Europe-faced economy.
Lingering concerns about widespread corruption in Ukraine mean far-reaching reforms remain in focus and will be a condition for any recovery plan.
Lugano is not a pledging conference, but will instead attempt to lay out the principles and priorities for a rebuilding process aimed to begin even as Russia’s war in Ukraine continues to rage, according to AFP.
In practice, the scale of the reconstruction will depend on the outcome and length of the war, and whether eastern Ukraine – where there has been the worst devastation – is returned to Kyiv or remains in Russian hands.
The cost of the war is estimated at $1tn if it lasts until the end of the year. The International Monetary Fund has estimated Ukraine’s balance of payments gap until June to be roughly €14.3bn ($15bn).
One of the goals of the conference will be to sketch out a vision of a Ukrainian economy that dovetails with Europe, providing specialisms in agriculture, renewable energy and technology sectors.
One of the most sensitive issues will be a programme of de-oligarchisation and how to entrench powerful anti-corruption institutions at a time when large flows of money from the US and Europe are likely.
Ukraine’s ambassador to Switzerland, Artem Rybchenko, said ahead of the conference that it would help create “the roadmap” to his country’s recovery.
In all, around 1,000 people are scheduled to participate in the conference, including European Commission President Ursula von der Leyen, several government chiefs and numerous ministers, according to AFP.
Rebuilding Ukraine is expected to cost hundreds of billions of dollars.
Kyiv School of Economics (KSE) has estimated the damage done so far to buildings and infrastructure at nearly $104bn.
It estimated that at least 45m square metres of housing, 256 enterprises, 656 medical institutions, and 1,177 educational institutions had been damaged, destroyed or seized, while Ukraine’s economy had already suffered losses of up to $600bn.
Ukrainian troops withdraw from Lysychansk
Russia has said it is in control of Ukraine’s eastern Luhansk region after taking over Lysychansk, the last Ukrainian-controlled city in the region.
The Russian defence minister, Sergei Shoigu, told Vladimir Putin on Sunday that their forces had established “full control” over Lysychansk and several nearby settlements, the Russian state news agency RIA Novosti reported.
Ukraine’s military command confirmed on Sunday evening that its troops had been forced to pull back from the city, saying there would otherwise be “fatal consequences”.
It said: “In order to preserve the lives of Ukrainian defenders, a decision was made to withdraw.”
Ukraine’s president, Volodymyr Zelenskiy, acknowledged the loss of the city, vowing to retake the area due to the army’s tactics and the prospect of new, improved weaponry.
“If the commanders of our army withdraw people from certain points at the front, where the enemy has the greatest advantage in fire power, and this also applies to Lysychansk, it means only one thing,” Zelenskiy said in his evening video address. “That we will return thanks to our tactics, thanks to the increase in the supply of modern weapons.”
A Russian takeover of Lysychansk means Moscow has in effect won control of the entire Luhansk region as well as more than half of the Donetsk region, amounting to about 75% of the two eastern regions, which are collectively known as Donbas.
Summary and welcome
Hello it’s Samantha Lock back with you as we unpack all the latest news from Ukraine this morning.
Leaders from dozens of countries, international organisations and the private sector are set to gather in Switzerland today to hash out a ‘Marshall Plan’ to rebuild war-ravaged Ukraine.
Meanwhile, Russia has said it is in control of Ukraine’s eastern Luhansk region after taking over Lysychansk, the last Ukrainian-controlled city in the region.
Here are all the latest lines as of 7.30am in Kyiv.
- Ukrainian forces have retreated from Lysychansk as Russia claims it is now in control of Ukraine’s eastern Luhansk region. The Russian defence minister, Sergei Shoigu, said Moscow’s forces had established “full control” over Lysychansk and several nearby settlements. Ukraine’s military command confirmed on Sunday evening that its troops had been forced to pull back from the city, saying there would otherwise be “fatal consequences”. Lysychansk was the last Ukrainian-controlled city in the Luhansk region.
- Ukraine’s president, Volodymyr Zelenskiy, vowed to regain Lysychansk with the help of long-range western weapons. “We will return thanks to our tactics, thanks to the increase in the supply of modern weapons. Ukraine does not give anything up,” he said in an evening address.
- The eastern Ukrainian city of Sloviansk in the Donetsk region was hit by powerful shelling from multiple rocket launchers on Sunday, killing six people and injuring 20 others, the city’s mayor Vadim Lyakh said. In the post-2014 regional capital of Kramatorsk, a missile destroyed a hotel, according to its mayor Oleksandr Goncharenko. He said three rockets hit the town on Sunday and that there were no reported victims so far.
- At least three people were killed and dozens of residential buildings damaged in the Russian city of Belgorod near the Ukrainian border on Sunday, the region’s governor said. Vyacheslav Gladkov said at least 11 apartment buildings and 39 private residential houses were damaged, including five houses destroyed.
- Australia will send more than $100m in new aid to Ukraine including military equipment, as well as levelling sanctions on 16 new Russian officials, following prime minister Anthony Albanese’s secret trip to Kyiv. Albanese visited Bucha, Hostomel and Irpin, three towns in the Kyiv region where evidence of mass killings and torture was uncovered after the withdrawal of Russian forces.
- Britain will host a 2023 recovery conference to help Ukraine rebuild from the damage caused by Russia’s invasion. The Ukraine Recovery Conference (URC2022) will begin on Monday in Lugano, Switzerland, to discuss how to rebuild Ukraine, bringing together a Ukrainian delegation with representatives of other countries, international organisations and civil society, the UK foreign office said.
- A new New York Times investigation has revealed that Nazism references spiked to record-high levels the day Russia invaded Ukraine. The outlet surveyed eight million articles about Ukraine collected from over 8,000 Russian websites since 2014, and found that since 2014, references to Nazism were “relatively flat for eight years and then spiked to unprecedented levels on February 24” of this year.
- The president of Belarus and Vladimir Putin’s closest ally has said his ex-Soviet state stands fully behind Russia, adding that the country’s “have practically a unified army”. Alexander Lukashenko said he had thrown his weight behind Putin’s campaign against Ukraine “from the very first day” in late February. “We are being criticised for being the only country in the world to support Russia in its fight against Nazism,” a video on the state BelTA news agency showed Lukashenko telling a gathering. “We will remain together with fraternal Russia.”
- Turkish customs authorities have detained a Russian cargo ship carrying grain allegedly stolen from Ukraine, the Ukrainian ambassador to the country has said. “We have full co-operation. The ship is currently standing at the entrance to the port, it has been detained by the customs authorities of Turkey,” ambassador Vasyl Bodnar said on Ukrainian national television.