From Bloomberg NewsBloomberg Posted on August 12, 2022 August 12, 2022 President Vladimir Putin’s invasion of Ukraine pushed the Russian economy back four years in the first full quarter since the attack, putting it on track for one of its biggest declines on record, albeit less steeply than initially expected. In a grim account of the war for Russia, an economy that was picking up speed in early 2022 fell into contraction in the second quarter. Data on Friday showed gross domestic product contracted for the first time in more than a year, but it did better than forecasts, falling 4%. Taking into account lost output, GDP is now roughly equivalent to its size in 2018, according to Bloomberg Economics. The jolt of international sanctions over the war disrupted trade and crippled industries such as the auto industry, while consumer spending soared. Although the decline in the economy so far is not as steep as initially expected, the central bank predicts that the recession will worsen in the coming quarters, reaching its lowest point in the first half of next year. “The economy will move toward a new long-term equilibrium,” Bank of Russia Deputy Governor Alexey Zabotkin said at a briefing in Moscow. “As the economy restructures, growth will resume.” The Bank of Russia moved to contain the turmoil in markets and the ruble with capital controls and sharp interest rate hikes. Enough calm has returned to reverse many of these measures. Fiscal stimulus and repeated rounds of monetary easing in recent months have also begun to trickle in, softening the impact of international sanctions. Oil production is recovering and household spending showed signs of stabilization. “The crisis is moving on a very smooth trajectory,” said Evgeny Suvorov, chief Russia economist at CentroCredit Bank. On Friday, the central bank published a draft of its policy outlook for the next three years, predicting that the economy will need until 2025 to return to its potential growth rate of 1.5%-2.5%. The bank’s forecasts for 2022-2024 were unchanged, with GDP expected to contract by 4%-6% and 1%-4% this year and next, respectively. The report also included a so-called risk scenario where global economic conditions worsen further and Russian exports are subject to additional sanctions. If that happens, Russia’s economic recession next year could be deeper than during the global financial crisis in 2009, and growth will only resume in 2025. The authorities’ response so far has ensured a softer landing for an economy that analysts at one point expected to shrink by 10% in the second quarter. Economists from banks such as JPMorgan Chase & Co. and Citigroup Inc. have since upgraded their outlooks and now see output falling just 3.5% for the full year. Even so, the Bank of Russia predicts that GDP will shrink by 7% this quarter and possibly even more in the final three months of the year. The standoff over energy shipments to Europe raises new risks for the economy. Monthly cuts in oil output will begin in August, according to the International Energy Agency, which predicts Russia’s crude output will fall by about 20 percent by early next year. “The recession in 2022 will be less deep than expected in April,” the central bank said in a monetary policy report this month. “At the same time, the impact of supply shocks can be more extended over time.” To contact the editors responsible for this story: Benjamin Harvey at [email protected]
