Russian economy facing 10% dip

1 Apr 22

Economic sanctions on Russia following its invasion of Ukraine could wipe 10% off the nation's GDP this year, according to a multilateral development bank.


Explosion in Ukrainian capital Kyiv. Image © Giovanni Cancemi, Shutterstock

Russian inflation is set to peak at around 20% in 2022, as economic sanctions stifle investments and household consumption, according to a report this week from the European Bank for Reconstruction and Development.

Additional support from the central bank to the banking sector has helped to keep the economy running, but further sanctions are expected to further restrict GDP, the report added.  

The report said: “But with the latest energy-related sanctions, GDP could contract by around 10% in 2022.

“Furthermore, in the medium-term, a hostile approach that moves Russia further along the road to autarky will result in European diversification away from Russian energy and trade, and a perpetuation in Russia’s ongoing productivity issues, with negative implications for Russia’s already tepid potential growth rates.”

The Russian economy has endured several years of tight fiscal policy and a reduction in external debt, to prepare for economic sanctions, the report said.

However, the severity of the measures, including banning from the international banking system SWIFT and reduced energy exports are set to hit the economy hard, the EBRD said.

Sanctions on the central bank and SWIFT have around half of Russia’s US$ 620bn of foreign exchange reserves unusable, the organisation added.

The recent oil and gas sanctions from the European Union, will lead to a loss of around $30bn in export revenues this year, equal to around 2% of GDP, the report said.

Losses could deepen if the bloc decides to ban oil imports from Russia, or if other countries decide to follow suit and stop importing Russian oil and gas, the EBRD said.

Sanctions on oil and gas will not only impact the national economy, but also public finances, as revenues make up around a third of government revenues, the report added.

Earlier this month, analysts said that Russia was at imminent risk of defaulting on its debt due to sanctions and emergency policy decisions imposed following the Ukrainian invasion.

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