Russia’s economy will collapse this year between 8% and 10% due to the impact of Western sanctions on Russia for its military campaign in Ukraine, according to the Central Bank (BCR), which would mean the worst recession since 1994 and the worst record since Russian President Vladimir Putin is in power.
“The external environment of the Russian economy remains challenging and significantly limits economic activity,” the Russian monetary entity admitted this Friday after an ordinary meeting of the board of directors, in which for the first time since the start of the military offensive the February 24 published new macroeconomic forecasts.
The BCR admits that the leading indicators “point to a contraction in business and consumer activity.”
Consumer demand is declining and households are more likely to save. There are also problems in credit activity, especially in the retail market.
Imports suffer a clear brake due to trade and financial restrictions, rather than exports.
Despite the gradual change in the country and the commodity structure of exports and imports as new suppliers and markets for sales emerge, companies are experiencing considerable difficulties in production and logistics. directed by Elvira Nabiúlina.
The contraction forecast for this year is close to that of the International Monetary Fund (IMF), which recently placed it at 8.5%. But the president of the Russian Court of Accounts, Alexei Kudrin, predicts that it could reach 12.4%.
A market in Moscow, where prices rise steadily Photo: AFP
the western punishment
The Russian economy has already felt the effects of five unprecedented rounds of Western sanctions in the first quarter – more than 6,000 – in which GDP increased by only 1.6%.
Nabiúlina pointed out at a press conference that “the lowest point” for Russia will be in the fourth quarter, when the GDP will collapse between 12.5% and 16.5%.
The economist also believes that the annual inflation rate will bottom out at the end of the year, when it will be between 18% and 23%. In two months of Russian intervention in Ukraine it shot up to 17.6%.
If the predictions of the Bank of Russia are fulfilled and the GDP collapses between 8% and 10%, 2022 would be the worst year since 1994, when the Russian economy shrank by 12.7%.
It would also be the worst record in the more than two decades that Putin has been in power: neither the coronavirus pandemic in 2020 (which caused the worst drop in GDP in 11 years), nor the debt crisis in Europe or the sanctions in 2014 due to the annexation of the Ukrainian peninsula of Crimea impacted both the Russian economy and the restrictions due to the war in Ukraine, according to the BCR.
The head of the Central Bank of Russia, Elvira Nabiulina, at a press conference this Friday. Photo: EFE
Previously the worst moment for Russia was in 2009, when GDP fell by 7.8%.
The BCR forecasts are published after Putin stated last week that the “blitzkrieg” of Western countries with their sanctions against the country “has failed”.
And all this while public statistics agencies decide to stop publishing data on some sectors -such as imports and exports “to avoid speculation and incorrect analysis”- or companies like Novatek announce that they will not publish their results for the first quarter under international standards.
Impact on the population
While, the population notices the crisis in prices and in their income. The BCR forecasts that annual inflation will continue to rise in the coming months and that next year alone it will drop to between 5% and 7% before returning to the distant target of 4% in 2024.
Real disposable income in Russia fell 1.2% year-on-year in the first quarter, while unemployment remains stable at 4.1% in March, the lowest figure since 1991, according to the federal agency. Rosstat.
Nabiúlina, who has just assumed another five-year mandate at the head of the BCR and who is responsible for managing the biggest economic crisis in 28 yearssaid this Friday that the situation in the labor market is “quite calm”.
Of course, he admitted “that the structure of employment will inevitably change and a redistribution between industries and professions and also geographically will be required.”
Market adjustment occurs for now through forced vacations or part-time work, he said.
According to the Deputy Speaker of the Lower House of the Russian Parliament, Andrei Turchak, currently some 600,000 people who used to work in international companies have been transferred to forced vacation or risk being fired before the decision of thousands of companies to suspend their activity in Russia or to abandon the market altogether.
The BCR forecasts that the Russian economy will return to growth “gradually in the midst of a structural transformation” in 2023, so that in the fourth quarter the GDP will increase between 4.0 and 5.5%.
However, for the year as a whole, the Russian economy will not grow or will remain in negative territory (between -3% and 0%).
In 2024, the GDP will increase between 2.5% and 3.5%, according to the BCR.
Source: EFE
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