Dmitry Polevoy, the chief strategist of Locko Invest, an asset management company in Moscow, said the sanctions would have a prolonged effect on the Russian economy and it was no longer important how much it would contract This year.
“What’s interesting is how much deeper the contraction will be next year than the government expects,” he said, noting that the widening fiscal deficit was becoming “the main headache” for the central bank.
Indeed, the Bank of Russia said on Friday that the budget deficit could force it to tighten policy to control inflation.
For years, the Russian economy and its tax revenues have relied on huge exports of fossil fuels. But the country’s energy industry has been upended by the war in Ukraine, most recently by a European Union embargo on Russian oil and the Group of 7 price cap on Russian crude, both of which came into effect. effective December 5. Last week, Russia’s finance minister said the country’s budget deficit would reach 2% of economic output this year, up from an earlier forecast of 0.9%, according to TASS, a state news agency. .
The central bank noted that unemployment in Russia had fallen to a record high, in part because the mobilization of troops to join the fighting in Ukraine had reduced the supply of available workers. In its statement on Friday, the central bank warned that the conscription effort had forced employers to raise wages.
Outside of Russia, the effects of the war in Ukraine have manifested themselves in soaring energy and food prices, pushing inflation in Europe, the United States and elsewhere well above the levels policy makers try to maintain. This week, the Federal Reserve, European Central Bank and Bank of England all raised interest rates and pledged to continue tightening policies until stubbornly high inflation is brought under control, even then. that their economies are showing signs of a slowdown or even a recession.