Russia’s Economy Crack – Economists Expect Sharp Changes

Russia’s economy will shrink sharply this year while inflation is rising; Punitive international sanctions are in place in response to Its invasion of Ukraine. Russian manufacturing activity fell in March at the sharpest pace since May 2020; in the early stages of the COVID-19 pandemic, material shortages and supply disruptions hit the factories hard.

The S&P Global Purchasing Managers’ Index for Russia, released on Friday, fell from 48.6 in February to 44.1 in March. A value below 50 represents compression. Goldman Sachs economists said on Friday that the drop was broad-based, with sharp drops, new orders, and the new exports orders components.

On Wednesday, economists at Capital Economics predicted that Western sanctions would likely push Russia to a 12 percent shrink by 2022, While inflation may exceed 23% annually. The European Bank for Reconstruction and Development (EBRD) forecasts a 10% contraction in the Russian economy. It will still be the deepest recession in the country in almost 30 years; GDP will then decline in 2023 and move into a long period of slight growth. Goldman Sachs also predicted a 10% contraction. The International Finance Institute expects a more damaging 15% reduction in Russia’s GDP in 2022; A further 3% in 2023.

Russia’s Economy – What to Expect

Fear of default on Russia’s sovereign debt didn’t materialize. However, the Kremlin managed to repay the most recent bonds, despite sanctions by Western powers, Which froze a considerable portion of the central bank’s $640 billion in foreign exchange reserves.

Russian stocks increased. After a month-long shutdown, the Moscow stock exchanges on March 24 opened with the ruble on. However, the capital control measures are partly responsible for the risk of debt default disappearing.

Economists estimate that a more sustainable recovery probably requires a peace deal still a long way off. Meanwhile, the spread of the war is huge in Central and Eastern Europe. The battle may reduce growth in CEE by 1.0-1.5% this year.

Russia’s prospects may also be further eclipsed. Allegations of civilian massacres by Russian forces in Bucha and other Ukrainian cities surfaced over the weekend. Cruelty may undermine the expectation of peace talks; Also increase the threat of more punitive international sanctions. Ukrainian President Volodymyr Zelensky accused Russia of genocide. The occupier denied allegations that Its forces killed civilians in Bucha.

Conclusion

The European Union plans to impose new sanctions against Moscow amid recent atrocities. Council of Europe President Charles Michel announced on Twitter that further EU sanctions and support are on their way. The British Foreign Secretary will travel to Poland on Monday to meet with his Ukrainian and Polish counterparts ahead of talks with the G-7 and NATO allies later this week.

Despite a sharp drop in Russia’s March PMIs, Goldman Sachs said on Friday that activity was surprisingly strong in some CEEMEA economies. Gains in Hungary and South Africa are offset by declines in Poland and the Czech Republic.