Russia’s economy would be 5% bigger if it had not invaded Ukraine, says US

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Good morning.

Vladimir Putin’s war in Ukraine is damaging Russia’s economy, driving up domestic consumer prices and forcing Moscow to spend a third of its budget on defence, the US Treasury department has said.

Rachel Lyngaas, the department’s chief sanctions economist, said the combination of war, US allies’ sanctions and Moscow’s policy response was “putting Russia’s economy under considerable economic strain”.

The comments appeared in a draft text, seen by the Financial Times, of one of the most comprehensive assessments of the financial consequences for Russia of the president’s decision to send troops into Ukraine last year.

Russia’s invasion and occupation of parts of Ukraine were now “contributing to rapidly growing expenditures, a depreciating rouble, increasing inflation, and a tight labour market reflecting a loss of workers” in its economy, Lyngaas wrote.

Russia’s economy would be more than 5 per cent bigger if Putin had not launched the war in Ukraine, Lyngaas argued, adding that the country was underperforming other energy exporters, including the US. Read the full exclusive story.

  • EU divisions: EU failure to agree support for Ukraine would send a dangerous signal to the US, where Republicans are opposing more funding for Kyiv, Sweden’s premier told the FT.

  • Opinion: America’s exploitable political divisions are giving Putin an edge over US President Joe Biden, writes Edward Luce.

Here’s what else I’m keeping tabs on today:

  • Monetary policy decisions: The Bank of England and the European Central Bank are expected to follow the US Federal Reserve in keeping interest rates steady. Asian markets followed Wall Street higher this morning after the Fed gave its clearest signal yesterday that it would begin cutting rates next year.

  • European Council meeting: EU leaders discuss Russia’s war in Ukraine, conflict in the Middle East and enlargement of the bloc in Brussels.

  • Economic data: The US has monthly retail sales figures, and the International Energy Agency publishes its oil market report.

  • Elon Musk: A San Francisco court will hear the US Securities and Exchange Commission’s bid to force the tech billionaire to testify in its probe of his $44bn takeover of Twitter, now known as X.

  • Results: Costco, Currys and Serco report.

For more on rate-setters’ battle with inflation, premium subscribers can sign up for our Central Banks newsletter by Chris Giles. Upgrade your subscription here.

Five more top stories

1. Exclusive: The US, the UK and France are exploring ways to convince Hizbollah to pull back from Lebanon’s border with Israel in a diplomatic push to prevent a full-blown conflict. Western officials are trying to get Israel and Lebanon to implement a long-ignored UN resolution that requires the Iran-backed militant group to withdraw its fighters from the border region. Read the full story.

  • Israel-Hamas war: US President Joe Biden’s unusually blunt criticism of Israel’s “indiscriminate bombing” of Gaza is the strongest sign yet of tensions between the two allies.

  • The toll on Gaza: Israel’s bombardment has killed entire families, wiped out multiple generations of Palestinians and ravaged the enclave’s social fabric.

2. The UK has been chosen as the headquarters to build a new fighter jet with Italy and Japan, as the three nations push forward ambitious plans to have the aircraft flying by 2035. The plans for the Global Combat Air Programme were confirmed in a trilateral treaty signed in Tokyo today. Here are more details on the ambitious initiative.

3. The US House of Representatives has voted to approve an impeachment inquiry into Joe Biden, with 221 Republicans supporting the move and 212 Democrats against. The inquiry is based on allegations that Biden improperly benefited from his son Hunter’s business dealings, though no evidence has emerged of wrongdoing by the president. Here’s how the Bidens have responded.

4. Homelessness and rough sleeping have risen sharply in England, driven by the cost of living crisis and housing shortage. New research shows the number of people who will spend Christmas without a home has jumped by 14 per cent year on year to 309,000, with nearly half of them children. Here are more findings from advocacy group Shelter.

5. BP said its former chief executive Bernard Looney would forfeit up to £32.4mn over “serious misconduct” related to failing to disclose past relationships with colleagues. Looney stepped down abruptly in September after he admitted to not being “fully transparent” with the board. But BP said yesterday it had determined Looney knowingly misled the board and the oil major had therefore decided to sack him without notice.

News in-depth

COP28 president Sultan al-Jaber and John Kerry, the US’s top climate diplomat,  at the COP28 UN Climate Summit
© AP

Almost 200 countries yesterday signed an agreement at COP28 to transition from fossil fuels. Talks over the deal, which pushed the world’s most important climate summit almost 24 hours beyond its deadline, exposed deep divisions between wealthy and poorer countries over the costs of halting new coal, oil and gas projects. While a compromise has been won, the battle for a 1.5C limit may have been lost.

We’re also reading . . . 

Chart of the day

The outlook for the UK housing market improved in November as mortgage rates eased, marking the first rise in sales expectations since early 2022, according to a survey yesterday by the Royal Institution of Chartered Surveyors.

Line chart of Net balance between surveyors reporting rises and falls, % showing The UK housing market outlook improved in November

Take a break from the news

The Enlightenment is traditionally understood as the 18th-century revolution in learning that helped make the modern world. But was it the pride of European civilisation or a tool of empire? Linda Colley reviews two books that debate the movement’s consequences.

A lithograph from the late 1700s of a man in a tunic of animal furs against a dark backdrop
Swedish naturalist Carl Linnaeus (1707-78) in traditional Lapland attire © Bridgeman Images

Additional contributions from Benjamin Wilhelm and Gordon Smith

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