Russia's economy won't recover from war in Ukraine 'until 2030s'

Russia’s economy won’t recover from war in Ukraine ‘until 2030s’



The Russian economy will not return to its pre-war level until the end of the decade, due to Putin’s invasion of Ukraine and subsequent sanctions.

That’s according to Scope Ratings, which predicts that by the end of 2023, GDP will be around 8% below its 2021 level.

After 2023, potential growth will fall to between 1 and 1.5% per year, compared to 1.5 to 2% before the war, according to the agency.

Heavy spending on the war effort, limited access to Western technologies, and negative demographic trends will continue to hurt Russia’s economy, the report said.

Levon Kameryan, an analyst at Scope, said: “The Russian government, aided by the Bank of Russia, has used windfall export earnings to mitigate the immediate domestic economic impact of the war in Ukraine and sanctions, but the outlook in the longer term have worsened. »

The mobilization of Russia and the fall in oil prices weaken the economic hand of Vladimir Putin.

A costly mobilization of troops, falling energy prices and a new round of Western sanctions threaten to weigh on the already struggling Russian economy and undermine the financial foundations of President Vladimir Putin’s war in Ukraine.

These economic storm clouds come as Mr. Putin orders more financial resources to be devoted to the war in Ukraine. The Kremlin’s decision to recall more than 300,000 troops will require new funds to equip, train and pay for the new reinforcements, analysts say. It has also wreaked havoc on Russian private companies, which face a new challenge when workers show up for work or leave the country.

And it comes as the windfall from soaring energy prices – Russia’s main economic asset – appears to have peaked. Last month, the Russian federal government’s budget was in deficit due to declining energy revenues. That was before the latest drop in oil prices and before Moscow shut off most of its last natural gas flows to Europe.

“The mobilization is another blow for the Russian economy, especially due to the increased uncertainty,” said Maxim Mironov, professor of finance at IE Business School in Madrid. “And it comes as oil and gas revenues start to dry up.”

Wars are often won by the side that has the economic means to sustain the fights over the long term. Ukraine’s economy has been battered, but it is receiving massive help from the West to stay afloat.

Western sanctions destabilized Russian trade, but Moscow managed to stabilize the economy thanks to a jump in energy prices. The rouble, which plunged at the start of the war, rose sharply against the dollar and inflation moderated. The Russian government and independent economists are now forecasting a less severe recession this year than expected.

Although there was no evidence of an impending economic collapse, business owners and investors inside the country reacted with dismay to the news of the mobilization. Activists and analysts say Mr. Putin’s order opens the door to a much bigger call for air. The Russian stock market, limited mainly to domestic investors, plummeted after the announcement of the project.

“It’s really impossible to count,” said Mihail Markin, head of the business development department at Moscow-based logistics firm Major Cargo Service. “If it’s five people in a company of 1,000 people, that’s one thing, but what if it’s half? “.

“And so who knows how companies will act without the people who are enlisted,” he added.

Prior to the draft, official data showed the government veered into a big budget deficit in August. He said the budget surplus for the year narrowed to 137 billion rubles, or $2.3 billion, for the first eight months of the year, from around 481 billion rubles in July.

The government has proposed several measures to close the gap, including increasing taxes on the energy sector. It issued government bonds this month for the first time since February and promised to run a deficit next year. These bonds will have to be financed by local savers. Foreign investors, who held 20% of government bonds before the war, are excluded from the market. Moscow is excluded from the foreign debt markets.

Russia’s economic problems are partly a backfire of the country’s own policies. High energy prices caused by the war in Ukraine initially created huge revenues for Russia. About 45% of total Russian federal budget revenue came from oil and gas in the first seven months of the year, according to the Institute of International Finance.

Leave a Comment

Your email address will not be published. Required fields are marked *