Russia is on course for an economic meltdown that rivals or even surpasses the magnitude of the recession in 1998, which followed a default on its debt, although the financial fallout may be less than then.
Days following President Vladimir Putin ordered troops into Ukraine, economists began publishing their forecasts for the world’s eleventh-largest economy. Despite their warning, the forecast is vague and subject to revision.
Tell the economists at JP Morgan Chase & Co. Clients In a report, on Friday, they expected a 7% contraction in GDP this year, just as Bloomberg, in a report seen by Al Arabiya.net, forecast a drop of regarding 9%. The economy shrank by 5.3% in 1998 amid the debt crisis.
Russia’s economy is faltering following foreign governments imposed sanctions on trade, finance and travel, froze its central bank reserves and isolated many of its banks from SWIFT.
Russia has sought to isolate its economy and markets with capital controls, doubling interest rates, and other emergency measures, all of which will hurt growth.
In their report, JPMorgan economists led by Bruce Kasman said the sanctions undermine the two pillars of stability – the central bank’s “fortified” foreign currency reserves and Russia’s current account surplus.
However, investors said that while the fallout from the Russian invasion is greater than what we saw in 1998, the ruble’s short-term decline has proven less and the country now has a greater ability to avoid defaulting on its debt. If other countries continue to resist imposing sanctions on their energy exports.
“The more worrying thing is in the long run, the longer the sanctions hold, especially if they are expanded to include gas and oil exports, the more likely Russia will become,” said Tim Graf, head of macroeconomic strategy for EMEA at State Street Global Markets. An untouchable market for years to come.”
Graf added: “The currency weakness that we see now will inevitably reflect on inflation levels, especially if the economy remains closed from the rest of the world, and it is not difficult to imagine similar extreme scenarios for the post-1998 period in this case.”
Oil and gas revenues provide hard currency support to Russia because energy sales and transmission have been spared in sanctions as the United States and other governments fear these restrictions will further damage their economies. Russia was running a monthly current account surplus of regarding $20 billion at the start of the year.
Bloomberg believes that a ban on oil and gas exports will mean the economy might shrink by regarding 14% this year.
