The invasion of ukraine by President Vladimir Putin set Russia’s economy back four years first full trimester after the attack, putting it on course for one of the longest recessions on record, albeit less pronounced than initially feared.
In a grim narrative of Russia’s war, an economy that was accelerating at the start of 2022 contracted in the second quarter. Data to be released on Friday will show gross domestic product contracted for the first time in more than a year, down 4.7% per yearaccording to the median forecast of 12 analysts polled by Bloomberg.
What the experts say
“The economy will lose four years of growth, returning to its 2018 size in the second quarter. We expect the contraction to slow in the fourth quarter with looser monetary policy supporting demand. Still, the economy will lose another 2% in 2023because the European energy embargo will reduce exports.”
The shock of international sanctions over the war has disrupted trade and crippled industries such as car manufacturing, while consumer spending has come to a halt. Even though the decline of the economy so far is not as precipitous as expected, the central bank expects the decline to worsen in the coming quarters, bottoming out in the first half of next year.
“The economy will move towards a new long-term equilibrium,” said the Deputy Governor of the Bank of Russia, Alexey Zabotkin, during a briefing in Moscow. “As the economy undergoes restructuring, its growth will resume.”
“The crisis is following a very fluid trajectory”
The Bank of Russia acted to contain market turmoil and the ruble with capital controls and sharp increases in interest rates. Enough calm has returned to undo many of these measures.
Fiscal stimulus and repeated rounds of monetary easing in recent months have also started to take effect, mitigating the impact of international sanctions. Oil extraction has resumed and household spending has shown signs of stabilizing. “The crisis follows a trajectory very soft,” said Evgeny Suvorov, chief economist for Russia at CentroCredit Bank.
On Friday, the central bank released a draft of its policy outlook for the next three years, forecasting that it will take until 2025 for the economy to return to normal. its potential growth rate of 1.5%-2.5%. The bank’s projections for 2022-24 remained unchanged, with GDP expected to contract between 4% and 6% and between 1% and 4% this year and next year, respectively.
Growth would not resume until 2025
The report also included an alleged risk scenario in which global economic conditions deteriorate further and Russian exports are subject to additional sanctions. If that happens, Russia’s economic recession next year could be deeper than during the global financial crisis in 2009 and growth would not resume until 2025.
So far, the authorities’ response has ensured a soft landing for an economy that analysts at one point predicted would contract 10% in the second quarter. Economists at banks such as JPMorgan Chase & Co. and Citigroup Inc. have since improved their outlook and now see output falling tonly 3.5% throughout the year.
Even so, the Bank of Russia expects GDP to contract by 7% this quarter and possibly even more in the last three months of the year. It is estimated that the economy contracted by 4.3% in the second trimester.
“The fall in 2022 will be shallower than expected in April”
The stalemate on energy shipments to Europe poses new risks to the economy. Monthly declines in oil production will begin in August, according to the International Energy Agency, which forecasts that Russia’s crude oil production will decrease by about 20% early next year.
“The fall in 2022 will be shallower than predicted in April,” the central bank said in a monetary policy report this month. “At the same time, the impact of supply shocks It can spread further over time.