U.S. and European sanctions imposed on Russia over its war in Ukraine could lead to a longer and deeper economic recession than previously expected, Bloomberg writes, citing an internal report from the Russian government, which the agency obtained.
All scenarios presented in the report predict that sanctions pressure on Russia will increase as more countries join the restrictive measures. Europe’s abrupt withdrawal from Russian oil and gas could be a blow to the Kremlin, the report says. Perild.com tells the details.
Longer and deeper recession
Russian officials and experts have prepared a report for the Russian government that attempts to assess the impact of the sanctions imposed on Russia over its full-scale invasion of Ukraine. This is reported by Bloomberg, who studied a copy of the report.
On August 30, the report, which had been in preparation for months in an attempt to “assess the true impact of Russia’s economic isolation” due to the invasion of Ukraine, was presented at a private meeting of senior Russian officials. The authenticity of the report to the agency was confirmed by sources familiar with the discussion.
Bloomberg writes that “the confidential report contrasts with optimistic public statements” by Russian officials. The document says that Russia could face a longer and deeper recession due to Western sanctions that threaten important sectors of the Russian economy.
It follows from the report that the real prospects for economic growth in Russia are limited, and each of the scenarios presented assumes a fall in GDP at least until 2024. In total, experts identified three such scenarios:
The target is a fall in GDP (from the level of 2021) by 2.9% in 2022, by 3.8% in 2023 and by 1.3% in 2024, with a subsequent increase to 16.9% by 2030. Inertial – a drop in GDP by 3.5% in 2022, by 8.3% in 2023 and growth to 3.7% by 2030. Stressful – a drop in GDP by 4.2% in 2022, by 11% in 2023 and by 11.9% in 2024. By 2030, the decline will slow down to 3.6%, but the economy will not reach 2021 levels.
All scenarios, according to Bloomberg, assume increased sanctions pressure, including from countries that have so far held a neutral position.
In addition to the restrictions, which affected about a quarter of Russian imports and exports, the report details how Russia is already facing a blockade “affecting virtually all forms of transportation” that has further limited the country’s economic potential.
“According to the report, over the next year or two, output is likely to decline in a number of export-oriented sectors, from oil and gas to metals, chemicals and wood products. Although there may be some rebound later, and these sectors will cease to be drivers of the economy,” – says the Bloomberg publication.
A complete shutdown of gas supplies to Europe could cost the budget 400 billion rubles ($6.6 billion) a year in lost tax revenue, according to the report. It will not be possible to fully compensate for the lost sales by new export markets even in the medium term. Russia may also reduce LNG production due to the lack of the necessary technologies for the construction of such plants.
It also follows from the report that the following will be the most affected by the sanctions:
agriculture – seeds for staples such as sugar beets and potatoes, fish feed and amino acids aviation – lack of access to imported parts can lead to a reduction in the fleet as they go out of service; mechanical engineering – Russia produces only 30% of the necessary machine tools, and the local industry is not able to meet the growing demand pharmaceuticals – about 80% of domestic production depends on imported raw materials communications and information technology: due to restrictions on the production of SIM cards, by 2025 the country may face a shortage of them, and by 2022 its telecommunications sector may lag behind the world leaders by five years metals – due to sanctions, metal producers will lose up to $5.7 billion a year IT – by 2025 up to 200 thousand IT specialists may leave the country