President Vladimir Putin’s action set Russia’s economy back four years in the first full quarter after the attack, putting it on track for one of the longest recessions on record, though less pronounced than initially feared.
In a grim retelling of Russia’s war, an economy that was accelerating in early 2022 contracted during the second quarter. Data to be released on Friday will show gross domestic product contracted for the first time in more than a year, falling 4.7% annually, according to the median forecast of 12 analysts surveyed by Bloomberg.
What the experts say
“The economy will shed four years of growth, returning to its 2018 size in the second quarter. We expect the contraction to slow in the fourth quarter with looser monetary policy supporting demand. Still, the economy will lose another 2% in 2023, as the European energy ban will depress exports.”
The shock of international sanctions over the war disrupted trade and crippled industries such as car manufacturing, while consumer spending ground to a halt. Although the economy’s decline so far is not as precipitous as anticipated, the central bank projects that the decline will worsen in coming quarters, reaching its lowest point in the first half of next year.
“The economy will move towards a new long-term equilibrium,” Bank of Russia Deputy Governor Alexey Zabotkin told a briefing in Moscow. “As the economy undergoes a restructuring, its growth will resume.”
“The crisis is moving along a very smooth trajectory”
The Bank of Russia acted to contain the turmoil in the markets and the ruble with capital controls and sharp increases in interest rates. Enough calm has returned to roll back many of those measures.
Fiscal stimulus and repeated rounds of monetary easing in recent months have also begun to take effect, mitigating the impact of international sanctions. Oil extraction has been recovering and household spending showed signs of stabilizing. “The crisis is moving along a very smooth path,” said Evgeny Suvorov, chief Russia economist at CentroCredit Bank.
On Friday, the central bank published a draft of its policy outlook for the next three years, forecasting that it will take until 2025 for the economy to return to its potential growth rate of 1.5%-2.5%. The bank’s projections for 2022-2024 were left unchanged, with GDP forecast to contract between 4% and 6% and between 1% and 4% this year and next, respectively.
Growth would only resume in 2025
The report also included an alleged risk scenario in which global economic conditions deteriorate further and Russian exports are subject to additional sanctions. If that happens, Russia’s economic recession next year may be deeper than during the global financial crisis in 2009, with growth only resuming in 2025.
The authorities’ response so far has ensured a softer landing for an economy that analysts at one point expected would contract 10% in the second quarter. Economists at banks including JPMorgan Chase & Co. and Citigroup Inc. have since upgraded their outlook and now see output falling just 3.5% for the full year.
Even so, the Bank of Russia predicts that GDP will contract by 7% this quarter and possibly even more in the last three months of the year. The economy is estimated to have contracted 4.3% in the second quarter.
“The fall in 2022 will be shallower than expected in April”
The standoff over energy shipments to Europe poses new risks to the economy. Monthly declines in oil production will begin in August, according to the International Energy Agency, which predicts that Russia’s crude output will decline about 20% early next year.
“The fall in 2022 will be shallower than expected in April,” the central bank said in a monetary policy report this month. “At the same time, the impact of supply shocks may be more spread out over time.”
Facebook Comments
Disqus