Page 63 - bneMag April 2022 Russia living with sanctions

bne April 2022 New Europe in Numbers I 63
Russia's GDP expected to drop 8-15% in 2022 on Ukraine invasion, inflation at 20%
bne IntelIiNews
The domestic analysts surveyed by the Central Bank of Russia (CBR) on March 10 forecast Russia's GDP to drop by 8% in 2022 – the worst result since 1998 – after the military invasion of Ukraine, versus 2.4% growth expected previously. In 2021 Russia's GDP rebounded to 4.7% growth after 2% contraction in the pandemic in 2020.
Russia will now see a wave of outlook reviews following the unprecedented market turbulence, uncertainty, and sanction pressure akin to economic war.
Due to uncertainty there is a wide spread in the range of economic forecasts for this year, although the fact that the economy will contract this year is unanimous.
The magnitude of the contraction is expected to be unprecedented. In 2014, following Russia's annexation of Crimea, the Russia's GDP growth forecasts of 3% were revised to 1-2% contraction. Russia's actual GDP growth in 2014 was 0.7%.
The Institute of International Finance (IIF) now expects the Russian
economy to contract by 15% (versus 3% previously), according to a BBC report. Experts warned that the decline could be even sharper should there be additional Western boycotts of Russian energy supplies. Elina Ribakova, deputy chief economist with the Institute of International Finance (IIF), told bne IntelliNews in a podcast that this year’s contraction could be as large as 20%.
“We have to rethink the way we think about Russia. We have gone from an open economy to one that is going to look more like that of Iran,” says Ribakova.
“Russia’s economy is in the early stages of a deep recession and we’ve revised our forecast for GDP to collapse by 12% this year. We’ve also revised our forecasts for
Central and Eastern Europe as a result of the war in Ukraine with inflation set to be stronger, GDP growth weaker and interest rates settling at a higher level than previously thought,” Capital Economics’ Liam Peach said in a note on March 11, which has also downgraded its Russia outlook from a 5% contraction earlier.
Normally a sideshow that interests only analyst’s, this month’s CBR economic survey has suddenly taken on a lot more relevance. The analysts surveyed by the CBR have cut the long-term GDP growth potential from 2% to 1%. The real cost of the sanctions until February has been to force Russian President Vladimir Putin to build a fiscal fortress that was intended to sanction-proof the Russian economy. The real cost of the sanctions has been to lower the growth potential to well below that of global GDP growth and hence condemn it to long-term stagnation.
In the shorter term after an 8% contraction in 2022 the GDP could inch up by 1% and 1.5% in 2023 and 2034, respectively, the CBR survey says.
Inflation is expected at 20% in 2022 (+14.5 percentage points revision) at 8.0% in 2023 (+4.0 pp), and at 4.8% in 2024 – still well ahead of the CBR’s target rate of 4%. As followed by bne IntelliNews, based on latest weekly inflation data, 20% consumer price growth is expected already in March.
Inflation started accelerating rapidly only a week after the start of the Kremlin’s so-called “special military operation”, and increased four-fold in under a month.
The extreme scenarios among economists' forecasts have 40% for inflation, a fall in GDP by 23% and the dollar/RUB rate at RUB130 to the dollar in 2022.
However, there were also optimists who believe that inflation will not exceed 9.8%, the economy, GDP will only contract by 3.5%, and the dollar will fall to RUB100, but no one saw the ruble breaking below the RUB100 barrier.
Russia GDP expected to drop 8-15% in 2022 on Ukraine invasion, inflation at 20%
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