Russia’s gross domestic product (GDP) is projected to fall by as much as 12% this year. This is a worse forecast than the Ministry of Economy, which expects it to fall by 8%, according to sources known to the estimates, provided that anonymity is maintained, as it is internal data. The Russian government has not published any official forecast since the invasion of Ukraine.
The Treasury Department said on Tuesday that the report was inaccurate. “The preparation of official macroeconomic forecasts does not fall within the competence of the Ministry of Finance,” it stated that it “expects that the measures taken by the government and the Russian central bank will make it possible to significantly mitigate the negative effects of sanctions and ensure the stable development of the economy”.
Back to the 90’s
A 12% drop would put the economy at the same level as the turbulence of the early 1990s after the end of the Soviet era.
According to Natalie Lavrova, chief economist at BCS Financial Group in Moscow, the oil embargo, the European Union’s (EU) diversion from Russian gas imports and a growing number of foreign companies leaving Russia have a decisive influence. All of this is likely to gradually expand and bring more and more negatives by 2023.
Without these factors, and only on the basis of current sanctions, Russia predicts a 10.8% decline in GDP in 2022 and around 5% in 2023.
Erasing one decade of economic growth
Russia’s central bank said on April 29 that it expects the economy to decline by 8% to 10% this year. The International Monetary Fund has so far predicted a 8.5% reduction in Russia’s GDP, while analysts in the Bloomberg survey expect it to fall by an average of 10.3%.
If the Russian Ministry of Finance’s forecast turns out to be correct, it would mean erasing about a decade of economic growth.
However, uncertainty about this outlook is high as the war in Ukraine continues and the US, the EU and their allies are discussing further sanctions.