Experts say Russia faces a financially turbulent 2023 as sanctions imposed by the West after Vladimir Putin’s invasion of Ukraine continue to take hold.
Reuters reported on Friday that a forecast by 15 analysts predicted the Russian economy would contract by another 2.5 percent over the next year, a contraction expected to be less sudden but longer than initially forecast.
Shortly after the February 24 invasion of Ukraine, forecasters said Russia’s GDP could fall by as much as 15 percent in 2022. But analysts polled by Reuters said the number was likely closer to three percent, suggesting the Russian economy is more resilient than initially thought.
A teller is seen in a bank’s exchange office November 8, 2022 in Moscow, Russia. Analysts have said the sanctions will hit Russia’s economy hard in 2023 due to the country’s invasion of Ukraine.
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But on Friday, Russia’s private Alfa-Bank chief economist, Natalia Orlova, said in Moscow that even if the downturn “isn’t as big as we all initially thought, it doesn’t mean we can go into next year peacefully. “
“We cannot rule out a stronger contraction next year compared to 2022, it could be 5-6%,” she said, according to Reuters.
The survey of analysts also said they expect inflation to accelerate to 12.1 percent, up from 8.4 percent in 2021.
Since Putin’s February 24 invasion, Russia’s economy has been hit by sanctions imposed by the European Union, the US and other Western allies to limit Moscow’s ability to fund its war machine.
Western countries have frozen Russia’s access to some of its foreign exchange reserves and kicked it out of the global SWIFT banking system, while the US Treasury Department said it would prevent investors from buying Russia’s debt.
While Russia was still benefiting from high oil and gas prices, a move by the G7 countries, taking effect Monday, will see Western allies cap a barrel of Russian sea oil at $60.
“Pre-existing sanctions restricting Russia’s access to high-tech inputs in the energy sector on which it uniquely depends are likely to have an even more profound impact on Russia’s financial viability,” said Abby Schrader, professor of history at Franklin & Marshall College , Pennsylvania.
Those sanctions, combined with the oil price cap and Russia’s dwindling foreign exchange reserves “could cripple the Russian economy,” she told Newsweek.
In a blog post for the Wilson Center think tank last month, Boris Grozovski wrote that Putin’s partial mobilization of troops “has done to the Russian economy what Western sanctions have yet to do.”
Hundreds of thousands of Russian men have fled the country, and alongside declining demand for their products, many companies are now facing shortages of experienced staff.
He noted that the draft is associated with a “noticeable drop” in the real estate market, credit demand and consumer sentiment.
The knock-on effects included an increase in non-performing loans and a drop in demand for things like restaurants and other services.
Non-oil and gas budget receipts for Russia’s coffers in October 2022 were 20 percent lower than a year earlier, and the drop in receipts is forcing the government to hike taxes, cut non-war spending and fall back on debt, he said .
“People are beginning to suspect that Putin’s military adventure is at their expense,” Grozovski wrote.
Dave Gulley, an economics professor at Bentley University, Massachusetts, said that sanctions on energy and technology and restrictions on Russia’s ability to move and access funds globally are having “significant impacts on the Russian economy.”
“Combined, they have serious implications that are likely to increase over time if sustained and enforced,” he told Newsweek. “Apart from the sanctions, the internal costs are very important. For example, tens of thousands of highly qualified Russians have left the country.”
Newsweek has reached out to the Kremlin for comment.
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