Putin’s war causes the Russian economy to shrink 4 years in a quarter | News about the Russian-Ukrainian war
A wave of international sanctions following Moscow’s invasion of Ukraine disrupted Russian commerce and brought many of its industries to a standstill.
Published on August 12, 2022
President Vladimir Putin’s invasion of Ukraine set Russia’s economy back four years in the first quarter after the attack, putting the country on track for one of the longest recessions on record even as the less serious than initially feared.
In a dismal tally of the war for Russia, an economy that was accelerating in early 2022 fell into recession in the second quarter. Data on Friday showed gross domestic product shrank for the first time in more than a year but better than forecast, falling 4% year-on-year.
According to Bloomberg Economics, in terms of lost output, GDP is now roughly the size of 2018.
War-related international sanctions have disrupted trade and pushed industries such as auto manufacturing into paralysis while consumer spending surged. While the economic slowdown so far has not been as severe as initially anticipated, the central bank forecasts the slump will worsen in the coming quarters, reaching the lowest level in the second half of the year. early next year.
“The economy will move toward a new long-term equilibrium,” Central Bank Deputy Governor Alexey Zabotkin said at a press conference in Moscow. “As the economy undergoes restructuring, its growth will continue.”
The Central Bank of Russia has acted to curb volatility in the market and the ruble with capital controls and sharply increased interest rates. Enough calm has returned to overturn many of those measures.
Fiscal stimulus measures and repeated rounds of monetary easing in recent months have also begun to take effect, easing the impact of international sanctions. Oil production is recovering and household spending shows signs of stabilizing.
“The crisis is following a very smooth trajectory,” said Evgeny Suvorov, chief Russia economist at CentroCredit Bank.
On Friday, the central bank released a draft of its policy outlook for the next three years, predicting the economy will take until 2025 to return to potential growth of 1.5%-2.5 %. The bank’s forecast for 2022-2024 remains unchanged, with GDP forecast to decline by 4%-6% and 1%-4% this year and next, respectively.
The report also includes a so-called risk scenario in which global economic conditions deteriorate further and Russian exports are subject to additional sanctions. If that happens, Russia’s economic slump next year could be even deeper than during the global financial crisis in 2009, and growth will only recover in 2025.
The authorities’ response so far has ensured a softer landing for an economy that analysts at one point expected to shrink 10% in the second quarter. Economists from banks including JPMorgan Chase & Co. and Citigroup Inc. have since improved their outlook and now see output down just 3.5% for the full year.
Even so, the Bank of Russia predicts GDP will shrink by 7% this quarter and possibly more in the last three months of the year.
The deadlock on energy shipments to Europe raises new risks to the economy. The monthly decline in oil production will begin as early as August, according to the International Energy Agency, which predicts Russia’s crude output will fall by about 20% by the beginning of the month, according to the International Energy Agency. next year.
“The drop in 2022 will be less profound than expected in April,” the central bank said in a monetary policy report this month. supply could last longer over time.”
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Benjamin Harvey at [email protected]