Page 12 - RusRPTSept22

Global crisis
The CBR also sketched out a scenario where the current shocks and imbalances cause a global crisis on the scale of the Great Financial Crisis of 2008.
CBR Governor Elvia Nabiullina should not be taken lightly in these predictions, as she very early on and correctly called the global inflation wave everyone has been suffering from in the last year and started tightening very early in May 2021. As a result, Russia has come to an end of its tightening cycle and Russia is the only country in Europe where inflation is now falling. (chart) However, the global economy has been battered by multiple crises in recent years. The global pandemic has seriously disrupted supply chains and to an extent caused a reversal of globalisation. That has had a knock-on effect of ending a decade of unusually low inflation rates. Rising prices have only been exacerbated by the war in Ukraine, which has poured petrol on the first of inflation and destabilised commodity markets that are bound to remain volatile as the economic war between the West and Russia looks like it could last years.
Russian President Vladimir Putin’s decision to invade Ukraine has unleashed very large tectonic forces that will, among other things, lead to the extensive restructuring of the global energy markets. In this uncertainty the CBR speculates conditions are ripe for a “Global Crisis” scenario.
The fragmentation of the global economy will continue and trade between countries will increasingly be concentrated in regional blocs, the Central Bank writes. Indeed, these trends were well underway before the war started and are bound to accelerate now as the West seeks ways to tighten the sanctions noose around Russia’s economic neck.
The CBR identifies two elements driving these trends. The first is persistently high inflation in major economies, which will require central banks to aggressively tighten monetary policy, resulting in a global recession. The second factor is the growing geopolitical tensions in the world, including the introduction of new sanctions against Russia, especially those targeting energy.
“The combination of these events could exacerbate imbalances in the global economy and lead to a new global financial and economic crisis, comparable in scale to the crisis of 2007-2008,” the regulator said.
With its economy already under pressure, a global crisis will significantly complicate its attempt at restructuring and adaptation to new conditions, as the budget will be stripped of a major source of revenue once commodity prices fall.
In the global crisis scenario the CBR has forecast Russia’s GDP will contract in 2023 more than in 2022. In 2024, the decline will continue, and only return to growth in 2025 – a year later than in the base case scenario – but even then growth will only be at a low rate of about 1%.
12 RUSSIA Country Report September 2022 www.intellinews.com