JPMorgan Chase became one of the first Wall Street banks to assess Russia’s economy after its invasion of Ukraine triggered Western economic sanctions, and it was pessimistic.
JPMorgan Chase strategists warned in their latest report on Monday (28th), “We tentatively assume that the Russian economy will contract by a seasonally adjusted 20% in the second quarter and 3.5% for the full year. But the margin of error for any guess is currently Very high, and the risks are heavily skewed to the downside. Additionally, we believe Russia’s growing political and economic isolation will undermine Russia’s growth potential over the next few years, thus reducing Russia’s trend growth rate to 1.0% from 1.75% previously.”
The bank’s strategy team added that the Russian economy could enter a recession.
The Western world launched a new round of sanctions against Russia over the weekend. Western allies start blocking “specific” Russian banks from accessing the SWIFT payment system. The decision essentially deprives Russia of access to global financial markets, exposing its economy to a potentially severe recession.
Deutsche Bank strategist Jim Reid said that in the decision, the Russian central bank’s reserves were effectively frozen.He noted that the country has about 630 billionDollarof foreign exchange reserves, most of which may be deposited directly with G10 banks and central banks.
“These sanctions will almost certainly have an impact on the Russian economy, which is now heading towards a deep recession and capital controls,” the JPMorgan team added.
Meanwhile, oil major BP said it would exit its 19.75% stake in Russian state oil company Rosneft, for which it will pay 25 billionDollarhuge cost. BP has been doing business in Russia for 30 years.
The Russian ruble tumbled more than 20 percent on Monday as citizens of the country were rumored to have begun queuing at ATMs to withdraw cash.
To this end, the Central Bank of Russia raised the key interest rate from 9.5% to 20%. Russian banks have also moved to restrict brokers from selling foreign securities, The Wall Street Journal reported.