Russia’s economy will shrink by 10 percent this year as the war in Ukraine and western sanctions inflict the deepest recession since the early 1990s, according to the European Bank for Reconstruction and Development.
Russian gross domestic product will also flatline in 2023 and suffer very low growth over the long term, the bank said, as overseas buyers reduce purchases of Russian oil and gas, foreign investors shun the country and educated young Russians emigrate. But its financial system had so far withstood the shock of retaliatory measures from the west, it noted.
“Russia will take a hit and living standards will take a hit,” said Beata Javorcik, EBRD chief economist. “But they will be able to weather this shock in terms of macroeconomic stability. What is going to impact Russia more is growth . . .
zero growth next year and very low growth longer-term. ”
The EBRD said the war had triggered the “greatest supply shock” since the 1970s, which would have a “severe” impact on low-income countries far beyond eastern Europe.
It said measures are taken by Russia’s central bank since the country’s invasion of Ukraine last month, including a sharp rise in interest rates and provision of liquidity, have helped stabilize the banking system. But Russia’s energy companies could struggle to pay foreign currency debts as their overseas earnings shrink, potentially causing “a more significant financial crisis”.
The EBRD’s updated forecast assumed a ceasefire between Russia and Ukraine “after two-three months but that sanctions will remain in place for the foreseeable future”, Javorcik said.
The multilateral bank, which stopped fresh lending to Russia in 2014 after Moscow’s annexation of Crimea, predicted that Ukraine’s war-battered economy would decline by 20 percent this year. Growth would rebound in 2023 but damage to physical infrastructure estimated by Kyiv at $100bn would leave the country much poorer.