BOFIT Forecast for Russia 2022--2024
War bleeds the Russian economy
Russia’s invasion of Ukraine is having profound impacts on Russia’s economic future. Western sanctions continue to raise both the direct and incidental costs of war. EU import bans are reducing Russian budget revenues. International export bans on dual-use products are limiting Russia’s ability to arm and supply its invasion force. The lack of access to high-tech inputs is eroding Russia’s opportunities for future growth.
Reports senior adviser Laura Solanko: “The unpredictability of war means that our forecast of Russia’s economic performance over the next two and a half years is fraught with exceptional uncertainty. We have tried to gauge the impacts of Western sanctions this year and next year in their current form. In any case, the Russian economy is decoupling from the world economy and lower long-term growth is inevitable.”
The Russian economy faces a serious recession caused by war and sanctions. Our latest forecast sees the Russian economy contracting by 4 % both this year and next. Even if a net increase in exports has prevented a larger drop in economic output this year, increased uncertainty and high inflation will substantially erode private consumption and fixed investment in 2022-2023. Large swings in the ruble’s exchange rate, difficulties with cross-border payments and Western sanctions will reduce imports this year by about 25 %. The volume of exports, in contrast, should only shrink slightly.
Our forecast assumes that EU imports bans are implemented as planned for crude oil in December 2022 and petroleum products in February 2023. We further assume that all other sanctions remain in place in their current form throughout the forecast period. As a result, we expect an exceptionally large contraction in Russian exports in 2023. The contraction in exports will be the largest single factor in lowering Russia’s economic performance next year. In 2024, the final year of our forecast, the Russian economy adjusts to a paradigm of lower potential growth.
The BOFIT Forecast for Russia 2022--2024 is posted here.
For further information:
Iikka Korhonen, head of BOFIT, iikka.korhonen@bof.fi, +35891832272
Laura Solanko, senior adviser, laura.solanko@bof.fi, +35891832291