Russian economy could shrink by 7% following sanctions against Ukraine | Russia
Russia’s economy is set to plunge into a deeper recession than that caused by Covid-19 due to Western sanctions and the country’s growing isolation after invading Ukraine.
Economists say measures imposed on Russian banks and businesses by the US, EU, UK and their allies are having a severe impact on Moscow’s financial markets and will inflict more damage on the economy Russian over time.
With tougher sanctions under consideration in Western capitals as Vladimir Putin rallies troops closer to Ukraine’s capital Kyiv after a week of conflict, Goldman Sachs analysts said the investment bank has reduced its forecast for Russian gross domestic product this year from 2% growth to a decline of 7%.
The Russian economy is estimated to have grown 4.5% last year after shrinking nearly 3% in 2020, the worst year of the pandemic for the global economy.
Analysts said the war in Ukraine could have a limited impact on the global economy as trade ties between Russia and the rest of the world were limited, with the country accounting for 1.5% of global GDP and 2.9% and 0.9% of Russia’s merchandise exports. respectively the euro zone and Great Britain.
However, the invasion triggered a spike in global energy prices, threatening to exacerbate pressure on the cost of living in several countries, including the UK. The war comes as the global economy is still recovering from the pandemic.
Oil prices rose to more than $111 a barrel on Wednesday, the highest level since 2014, as the prospect of a disruption in supplies from Russia sent energy markets higher. Russia is the world’s second largest exporter of oil and the largest of natural gas.
If recent increases in oil and gas prices continue, economists predict that rising inflation will hit households and businesses and trigger a slowdown in economies around the world.
Analysts at consultancy Oxford Economics said pressure in Russian financial markets would significantly hurt Russian GDP, up to 6% from pre-crisis forecasts in a “plausible downside scenario”.
The economic repercussions for Ukraine, which is suffering massive infrastructure damage and disruption from Russian bombing, are expected to be even worse, with evidence from previously war-affected countries suggesting that a collapse of up to 60% could be possible. Eurozone and UK GDP could be around 0.5 percentage point lower than previously forecast due to the impact of soaring gas prices.
However, analysts have warned that a war lasting until 2023 with tougher sanctions from Western governments and retaliation from Russia by restricting gas supplies would lead to a steeper 7% drop in GDP. Russian next year.
Innes McFee, chief global economist at Oxford Economics, said the impact on jobs and growth was difficult to predict given the rapid changes in the dispute. “This is not the worst-case scenario. More serious conflict scenarios are possible. But we see this downside scenario as a relatively high probability of how the economy could deteriorate in the event of a more prolonged conflict.