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Hello and welcome to World Business Report here on the BBC World Service with me, Rob Now, if you're a regular listener to the programme, you'll know that sometimes here on World Business Report, we decide to focus on just business.
One story. And that is what we're doing today as we're looking at that crucial meeting that has started. in Alaska between the US President Donald Trump and the Russian President Vladimir Putin.
We're going to look at the economic implications that meeting will have. for Ukraine and for Russia.
As they stepped onto a podium, the presidents, who are still talking now, were greeted by a flight pastor.
There you go. You heard some of the sounds there as they stepped onto that podium.
You remember that Russia invaded Ukraine in February 2022.
That had huge implications for the global economy.
More on that in a few minutes. But let's give you a flavour of what's happened so far.
Speaking to reporters on Air Force One on his way to Alaska, President Trump was asked about the impact that business could have on the talks.
There's a good respect level on both sides.
And I think, you know, something's going to come of it.
I noticed he's bringing a lot of business people from Russia.
And that's good. I like that because they want to do business, but they're not doing business until we get the war settled.
Meanwhile, in Ukraine, President Zelensky said Russia was still attacking Ukraine in the hours approaching the talks.
The war continues. It continues precisely because there is no order nor any signals from Moscow that it is preparing to end this war.
They're also killing on the day of the negotiations.
Let's take you back now and look at the impact that the war has had on the global economy. is Ken Rogoff, familiar voice on the programme, Professor of Economics at Harvard University, former Chief Economist. at the IMF.
Ken, thanks for joining us once again on World Business Report.
It did have a huge shock, didn't it? It was another shock to the global economy when Russia invaded Ukraine.
No, it's been a staggering shock that's still playing out, causing geopolitical fracturing, Europe's been hit especially hard because they had a model based on getting Russian gas, U.S. protection.
But I mean, it's really affected the whole world.
There are some countries that have benefited.
I'd pick on Turkey, for example, because the U.S. and Europe have been afraid to put the screws on Turkey, so it's been a conduit for Western goods.
And, of course, India is coming up also benefiting from getting cheap oil from Russia because we haven't until now been prepared to do anything about that.
Maybe that will change. More on that in a few seconds.
It was a huge shock to the global economy, but it was a few years ago.
Has that shock subsided? I mean, you know, the uncertainty about it to some extent has subsided in that if you can –
Think of it that way. The world's gotten used to it.
I mean, there was a question early on. It could come up again. about whether Putin was prepared to use tactical nuclear weapons, where it would end. how Europe would adjust.
And the economy is somewhat built around it at this point.
It's really basically at this point a regional war without quite the global economic ramifications that it once had. it's festering.
It could break out and become very significant again.
If you look at a country that has probably had... suffered the most economic impact because of the war, asides from Russia and Ukraine themselves.
Would Germany be close to the top of that list?
Germany would certainly be close to the top of that list because it also has affected what's been going on with China.
They've had to really rethink things in Germany.
They've given up their... debt break. They tried to have less debt.
Forget that. They've got to remilitarize.
They were getting a lot of their energy from Russia because of course their former chancellor, Angela Merkel, shut down their nuclear power plants never imagining this day.
But a lot of Europe, it's been very rough on Europe.
But on the other hand, you know, what doesn't kill you makes you stronger.
And so Europe's finally been taking measures that seemed impossible like preparing for their own defense, thinking about some of their extreme regulation that has made it difficult to have people and other modern developments.
Ken, stay with us. Just want to bring in Troy Hooper for a couple of minutes here.
He is co-head of equity capital markets for emerging markets.
Thanks so much for joining us, Troy, on the program.
Those talks are continuing between President Putin and President Trump.
Are these talks having much impact on the markets?
Yeah, no, not yet. I think we're going to have to wait until Monday until we see any direct market reaction.
But today the market was relatively quiet.
The Dow edged slightly higher and the S&P 500 slipped just a little bit.
So I think investors are digesting the recent gains. after a strong week.
Yeah, they certainly have had a number of gains investors as those markets continue to move.
Upwards, Ken, you mentioned India there and India has been buying Russian oil.
Donald Trump has said that if he doesn't get a ceasefire, if we don't see progress in these talks with President Putin, he may take more action against.
Russian oil. What would that mean for economies like India's?
Well, for the world as a whole, the timing for Trump's very good because there's something of a glut of oil coming coming on over the next year, partly what's coming out of the Middle East.
When the war broke out, Biden just didn't want to do anything that would make inflation go up.
So we actually had these weird sanctions on Russia where we Wouldn't let them buy stuff from us, but they could sell stuff to us.
Please keep giving us your uranium, your oil.
As things have moved, particularly in the oil market, Trump is in a position to clamp down.
But on the other hand, India is a— very important ally.
And they're very prickly. And I don't know how this is going to play out in the long run if Trump actually has to go there.
But I don't think there's any question that this is what's bringing Putin to the table. that already oil prices are falling, their revenues are falling.
That's where they get most of their money.
And if they can't sell to India, it's close to 40% of their oil they've been selling to India.
Well, they can sell it to China, but China's going to demand a big discount.
That's absolutely hit Putin, especially as the Russian economy is really starting to hurt after years of war.
Always having a pleasure. Always a pleasure having you on the program.
We're going to focus a little bit more on that Russian economy in about 10 minutes time. here on the programme.
Just want to bring Troy Hooper back in. Troy, those oil prices, it's been interesting, hasn't it?
Again, ahead of the summit, slipping down. a little bit as well.
They have been quite weak recently. Yeah, oil prices fell today, actually.
And I think that's because there's an expectation that these talks between Putin and Trump could lead to an easing of the sanctions imposed on Moscow.
And so if that were to happen, it could translate into more Russian oil production, which would add to these forecasts of the oil surplus.
Troy, stay with us. We're now going to spend the next 10 minutes looking at both economies that really are the center. of this war.
We're going to start by looking at the Ukrainian economy.
It's GDP, of course, that's a number that we use often to see how economies are are growing or contracting, will be 20% lower in 2025 than it was in 2021.
When we look at the Ukrainian economy, we often speak to Timothy.
Milovanov, who is a former Ukrainian minister of economic development, now president of the school of economics.
Timothy, thanks so much for joining us on the program.
Once again, obviously been very difficult for Ukraine.
It's been fighting a war and that drains resources.
Sum up where you think Ukraine Ukrainian economy is at the moment.
So yeah, the war is really taking a toll on the economy, but the economy is functioning.
I've just traveled throughout the country and it's working. the agriculture is there, the manufacturing, there's actually a lot of logistical construction.
And in the west of Ukraine, there is a lot of manufacturing springing up.
There is a lot of defense industry. But at the same time we have shortage of people, A, because of the war and draft, B, because of refugees and immigration.
And then all of our economy taxes, they are going towards the war effort.
So we do rely on international support. Without that international support, the Ukrainian economy will collapse.
And for now, the next year is uncertain.
You've been travelling up and down the country, as you said there.
Can I ask you about that issue of staffing in the workforce when you're fighting a war?
Of course, many of your men will be part of that war effort.
How are companies... able to function when it's so difficult to get the people you need to work in your business?
Oh yeah, absolutely. That has become a real issue already in the first year of the war.
And there are two sort of most important trends.
First, the productivity of labor increases, and that's done by more technology and more capital investment.
Well, cost of capital is high, but still there is a substitution. the slow qualified jobs, they're still there.
But when people are rebuilding or when people are relocating, they are taking into account that their businesses are likely to be having difficulties with hiring more people so they go for technologies or sort of adjustment of the business which requires fewer but more qualified people.
And the second shift, which is typical during the war, is to get women into the professions which are typically dominated by males.
And that is happening in agriculture and even in welding.
It is, hasn't it? It's something we've discussed on this programme quite a bit.
Stay with us, Timothy, because I want you to have a listen to this interview now with someone that we have been speaking to to since the war began in Ukraine, almost from the very first day.
That's Oleg Cherniak. He is the CEO... of CHI Software.
They're an IT company that is based in Ukraine.
We've seen better times, definitely. We're still in business.
Also, of course, with strength. We are still operational, as once again most of software development businesses in Ukraine. because we are not as dependent on the resources we have inside Ukraine. we have the electricity we have the internet we have the workplaces we moved most of this stuff well the one we could remove them either out of the country or to safe places inside the country.
And we are still working. Although, of course, the situation worsened.
We lost many orders. We lost several clients. and the general cash flow is worse, but we're living.
In terms of how... things have progressed economically for you.
You say things have been difficult. Have things improved? in the last year or steadily they just keep getting worse?
It's not getting much worse, but we do not see any rising trend at the moment, unfortunately.
I would say it's steady. There are a number of challenges that a country faces... when it's at war in trying to keep its economy going.
One is staffing. I know that it is possible for you in IT to operate sometimes. outside of the country as well.
But is staffing an issue for many Ukrainian businesses?
I would not say the situation is extremely dire.
There are questions of lack of qualified personal in some areas, but the general situation worsened not very significantly.
It's not a catastrophe. Your companies working in the IT sector, like most businesses, need regular power inside Ukraine.
How difficult is that? The power situation actually is probably the least of our problems at the moment.
It used to be difficult when the Russians started to bomb the infrastructure actively.
But now we have enough additional power, like we have all the generators and batteries and stuff.
What is the biggest problem that you face in trying to run a business inside Ukraine?
Well, the biggest problem is the attitude.
Often there are cases when people when they hear that some of our resources are located in Ukraine, it is a blocker for them because they do not want to invest into war risks. and they do not want to rely on a company that is partially located in a war-affected country.
We have these talks that will take place between President Trump and President Putin.
Do you expect much to come out of these talks?
Do you hope that there will be some sort of ceasefire that will allow more economic normality inside Ukraine?
I had a conversation with your colleague and he asked me, are you expecting a ceasefire?
And I said, no. And I was right. I would very much like the shooting to stop but the situation like we see it from ukraine is not in favor of any ceasefire because The demands that Putin is making, they haven't changed a bit probably.
Our authorities will not accept any deals, even if Mr. Trump and Mr. Putin will reach silence. some agreement, which I highly doubt.
Oleg Cherniak, the CEO of CHI Software, an IT company based in Ukraine, somebody we have been speaking to since the... started the war timothy milovanov still with his former ukrainian ministry of economic development now president of the Kyiv School of Economics.
Dimitri, you talked there about travelling up and down Ukraine recently.
When you were talking to people, what did they make of these talks that are happening as we're speaking between President Trump and...
President Putin, was there any expectation that it could lead to a ceasefire that could help to ease economic conditions in Ukraine?
So the attitude overall is it would be good if these stocks were successful.
But there is a lot of skepticism and people basically, I just talked to a guard, you know, at the place where I live, I drove in, you know, 30 minutes ago and we chatted a bit and he says, no, nothing is going to happen.
I don't believe a thing of this. see Putin is bombing us again today.
So, you know, basically there is a lot of skepticism.
Part of it is trauma and self-coping mechanism where People say, I'm not going to get my expectations high because I don't want to be disappointed because I have been disappointed so many times during the three and a half years.
But part of this sort of realization that Putin cannot be trusted and Ukrainians are extremely, extremely doubtful that this specific summit will lead to a definite resolution.
But I think people think and consider it to be a welcome step forward.
When you were travelling around Ukraine, you would have got a sense of the scale of the devastation, the scale of the rebuilding. that it lies ahead for Ukraine if at some point we do see some sort of settlement. taking place?
Give our listeners a sense of how big a task that is.
Yeah, that's about 10, maybe 20% in some areas, much more, of course. but of buildings that have been collapsed or affected in some way.
So imagine every 10th or every 13th building in your city in your home town, in your city, has been hit by a rocket or missile or a drone.
That's very difficult to comprehend until you experience it.
But at the same time, what sort of was striking for me as I was traveling, especially in the South, how much investment in agriculture is happening into gardens, into fruit trees, into berries, which are...
Sorry to interrupt you. Where's that money coming from?
Oh, I don't know, actually. I think some of this is FDI.
That's foreign direct investment. Yeah, foreign direct investment.
And some of it is domestic, but I think majority of that would be some kind of international investment.
But I was really amazed by this, especially in the south around Odessa region.
You know, I had this... sort of very scary, maybe misconceptions because I read on the news that Odessa is being hit daily, which is absolutely true.
So I thought I would come there and I would see doom and gloom and, you know, no people.
No, there is, you know, there is a sea, people on the beach, they're probably not swimming because their minds...
And, you know, there are farms and they're investing and they're harvesting.
And, you know, it's really bizarre. It's sort of...
One second they're harvesting and another second there is an attack.
And then two seconds later or two minutes later, they go back to work, you know.
Timothy, it's always a pleasure having you on the programme.
Those talks, of course, are continuing. Thank you so much for joining us.
Those talks between President Trump, Putin are continuing in Alaska.
Let's have a look at the Russian economy now.
How much impact have the sanctions had on its growth?
We'll look at that in more detail in a few minutes.
But firstly, let's hear from Inside Russia.
My name is Alexander. I am from the city of Novosibirsk in Siberia.
The sanctions had a negative effect. I mean, there are certain fields where it's just undeniable, but generally On just consumer electronics, they became slightly more expensive.
Different brands left. So it's more difficult to get them.
But these things are just more so reflecting on just... slight uptick in the cost of living.
Mostly the sanctions reflect on more serious money investments like cars, travel lights, Also, a lot of that connected with just the central bank policy with effects on the real estate market that that has had.
So it's difficult. determine factually where effects of sanctions begin and where effects of sanctions end.
But I can with certainty say that They are not making Russia and Russians richer.
That's for certain. They have a negative effect, worsening... all the other economic downturns that we've had.
And even with jobs, we've had many international companies left.
And so that... had an effect on the job market.
Interesting there to hear the thoughts from inside Russia.
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You're listening to World Business Report here on the BBC World Service.
Let's continue this conversation. Our Russia editor Steve Rosenberg is in.
Anchorage in Alaska. He says the impact of economic sanctions on Russia may have motivated Mr Putin to meet.
Budget deficit is increasing. Oil and gas revenues are decreasing.
Many branches of industry are approaching recession.
The Russian newspapers write about this all the time, even in a very controlled media landscape.
It's very difficult to hide that. So I wonder whether this is the moment that Vladimir Putin has decided well, the economic situation isn't great, perhaps there's less money, perhaps this is the moment to make concessions, to make compromise.
Steve Rosenberg there, who is in Anchorage.
Remember that Trump-Putin summit is underway in Anchorage.
Alaska. Let's pick up on some of the points that Steve made there with Sergei Radachenko, who I spoke to a short while ago.
He's a professor at the John Hopkins School of International Studies.
I think the importance of economic factors is sometimes overstated when it comes to Russia.
We're dealing here with a person. in his 70s, who's thinking about his legacy.
He's unleashed a war against Ukraine, which is perhaps the most significant decision of his entire presidency.
He's committed vast resources to this war, including building up the military-industrial complex in Russia to prosecute it for years to come.
Yes, this comes with economic costs, but he's someone who's thinking and who's working for history.
He's worrying about how future history historians, Russian historians will view him as a guy who gathered, quote unquote, Russian lands. or as someone who stopped halfway.
So that's a very peculiar personality. You know, somebody who's thinking in imperial terms and not necessarily in the economic terms.
That doesn't mean that he's not paying attention to the Russian economy, but he's got a competent team. people who work at the Russian Central Bank who are basically conducting holding the interest rates, up and keeping the tabs on inflation.
And so he's hoping to navigate the economic obstacles ahead But he really wants to get to his objectives in Ukraine.
I think those are more important to him.
They are more important to him, but those economic challenges are large, aren't they?
Oil revenues have slumped, the budget deficit... has widened to the largest in more than three decades.
So he does need to tackle those problems, doesn't he?
It does, but remember what happened in Russia in its even recent history.
Russia suffered an economic contraction, for example.
There was a major recession in 2009. that good for Putin?
No, it was not actually. Well, Medvedev was the president, but he was really the leader in charge.
But it wasn't great for Putin, but the regime held together.
It seems that the public mentality is Yeah, it's bad, but we'll persevere.
When you talk there about ordinary people, Russians, when we see an economy in trouble, for them on a day to day basis, how does that affect their lives?
What do they see when they go to the shops?
The biggest thing that they've seen The impact from the war has been the increase in prices.
Inflation has been something like 9%, I believe, which is much lower than it used to be, so to speak.
But that's because the central bank has taken truly draconian measures in raising the interest rate.
At one point, they were 21%. I believe at the moment, they've lowered those interest rates interest rates to still significant 18%.
That's because they're trying to cool down lower the inflation.
And that is, of course, what is hitting the working man and woman in the street the most, the spiraling prices, that's the main factor.
And then there are other knock-on effects of the war.
32% of the Russian budget is going towards the military in one way or another.
And that means less money is going to be made available for things like medical care, for education, for investment in science and technology, in short, for Russia's future.
So that will have long-term knock-on effects.
Final thoughts from you. There's a rather large business delegation that is accompanying.
President Putin, should we read much into that?
Has that surprised you, the size of that business delegation that's travelling with him?
Well, it hasn't, and that is because a part of Putin's approach to Trump has been to appeal to his business instincts.
He's basically, he's been offering a deal to President Trump, forget about Ukraine, let us handle Ukraine and then let's develop relations between ourselves because we have a lot to offer to the United States.
Look at all those profitable opportunities, that beckon if only you recognize that your true interests lie in Russia.
And that is why a key appointment for negotiations with Americans has been Kirill Dmitriev, who's of course the head of Russia's effectively a sovereign wealth fund, who's been dealing with Steve Witkoff.
And he's there in Anchorage as well. So they have been emphasizing the economic aspect and using that as leverage, using that as I suppose a carrot to lure Trump away from supporting Ukraine and solidarity with Europe over Ukraine.
Sergei Radichenko there on the state of the Russian economy.
Those talks between President Trump and President Putin continuing now into their third hour.
Continued coverage here. on the BBC World Service.
