Russia admits it faces economic collapse over Putin’s war Russia acknowledges that it is facing economic collapse as a result of Putin’s conflict.Russian economy has sunk into its worst crisis in over three decades as a result of Western economic sanctions, according to a leaked copy of the Kremlin’s own estimates published in the Russian media. Read more also on US – Switzerland accused of hiding Russian assets
The Russian finance ministry predicts that the country’s GDP will drop by 12 percent this year, the largest contraction since 1994, when the country began its transition to capitalism under Boris Yeltsin, the country’s first post-Soviet president.
Russia admits it faces economic collapse over Putin’s war
A collapse would result in the eradication of approximately a decade of economic expansion.
The revelation will increase the pressure on Russian President Vladimir Putin, who presided over a scaled-down version of the country’s traditional Victory Day parade commemorating the conclusion of World War II in Europe on Monday.
Following the invasion of Ukraine, Russia has been subjected to a slew of sanctions, which are set to be ratcheted up even more as the European Union considers a ban on the import of oil from the country.
Following last week’s tight escape from default on foreign obligations for the first time since the Bolshevik revolution a century ago, the Kremlin now finds itself on the verge of default once more.
Even though the Kremlin has not yet released a public economic prognosis, the finance ministry’s statistics – which were obtained by Bloomberg – are more dismal than the central bank’s forecasts of an 8pc to 10pc contraction this year.
According to the International Monetary Fund, the economy will contract by 8.5 percent. The ominous figures were revealed as Mr Putin made an appearance at a Victory Day parade in the Russian capital.
With no formal declaration of war against Ukraine or announcement of a larger-scale mobilization, President Barack Obama continued to describe the situation in Ukraine as a “special operation.”
Mr Putin, according to Krishna Guha, an analyst at Evercore, is “afraid of endangering public support for the war” by allowing mass conscription to take place.
During this time, European officials are debating how best to proceed with a proposed ban on the import of Russian oil and gas from the European Union.
According to reports, the European Commission is considering increasing financial assistance to landlocked eastern European countries in order to generate support for a ban, which is now encountering fierce opposition from Hungary.
Britain and the United States have already stated their intention to abandon Russian oil, while European countries are attempting to wean themselves off of Russian gas supplies. The Russian central bank has cut interest rates on a number of occasions in recent weeks, after initially hiking them at the start of the crisis.
The cuts, which are intended to stimulate spending, were implemented despite an increase in inflation to 17.7 percent.
Russia’s governor Elvira Nabiullina issued a dire warning about the impending catastrophic recession, surging prices, and widespread disruption of the country’s job market in late April. She predicted that the Russian economy would stay sluggish in 2023 as a result of this.
Russia’s economy grew by 3.7 percent in the first quarter, according to official estimates. However, Ms Nabiullina believes this was a transient boost brought on by individuals stocking up on necessities.
Russia’s GDP contracted by 3 percent in 2020, the first year of the epidemic, and by 7.8 percent in 2009, when the world economy was hit by the global financial crisis. According to business surveys, activity is continuing to decrease as a result of sanctions, which are causing demand to dry up.
Bosses are becoming increasingly pessimistic about the conditions they are dealing with as they try to reduce work backlogs in the face of declining orders.
According to the latest purchasing managers’ index data from S&P Global, companies are laying off employees and attempting to cut costs as a result of rising cost inflation.
Russia is being boycotted by a number of the world’s largest shipping companies, putting the country’s inflationary and supply pressures even further under pressure.
According to survey data maintained by Goldman Sachs, Russian economic activity is stabilizing at a level that is approximately 10% below pre-invasion levels.
“Overall, the effectiveness with which Russia can substitute imports and reroute (energy) exports will determine the course of events in the medium term,” said analyst Clemens Grafe.
A leaked copy of the Kremlin’s own estimates shows the economy is in its worse state in almost three decades.
The Russian finance ministry predicts a 12% drop in GDP this year, the greatest drop since 1994, when Boris Yeltsin, the first post-Soviet president, introduced capitalism.
A crash would halt a decade of economic expansion.
On Monday, Vladimir Putin presided over a scaled-down version of Russia’s traditional Victory Day parade honoring the conclusion of World War II in Europe.
Russia has been hit hard by sanctions since the invasion of Ukraine, and Brussels is considering an embargo on Russian oil.
Last week, the Kremlin narrowly escaped defaulting on foreign obligations for the first time since the Bolshevik revolution a century ago.
In spite of the Kremlin’s lack of a public economic projection, the finance ministry’s data, reviewed by Bloomberg, show a contraction of between 8% and 10% this year.
The IMF forecasts an 8.5pc drop. In a Victory Day ceremony in Moscow, Mr Putin revealed the grim figures.
Announcing a larger-scale mobilization was not part of the president’s speech, which referred to the fight as a “special operation.”
An Evercore analyst said Mr Putin is “wary of jeopardizing political support for the war by mass conscription”.
Meanwhile, European officials are debating how to proceed with a proposed Russian oil and gas ban.
The European Commission is allegedly considering increasing funding to landlocked eastern European countries to back a ban opposed by Hungary.
Britain and the US have already pledged to stop buying Russian oil, and Europe is looking to do the same. Russia’s central bank has cut interest rates several times since the crisis began.
The reduction came despite a 17.7% increase in inflation.
Governor Elvira Nabiullina warned of a catastrophic recession, surging prices, and labor market upheaval in late April. She predicted that the Russian economy would stagnate in 2023.
Russian economic growth was 3.7 percent in the first quarter, but Ms Nabiullina said this was due to consumers stocking up on goods.
In the first year of the pandemic, 2020, Russia’s GDP dropped by 3%, and by 7.8% in 2009. Business surveys show activity declining as penalties reduce demand.
Bosses are growing increasingly pessimistic as they reduce work backlogs amid declining orders.
Companies are laying off workers and cutting expenditures to combat rising costs, according to S&P Global’s latest purchasing managers’ index.
Large shipping businesses are boycotting Russia, adding to inflationary and supply pressures.
Goldman Sachs’ survey data shows Russian economic activity stabilising around 10% below pre-invasion levels.
Analyst Clemens Grafe says Russia’s mid-term prospects hinge on its ability to substitute imports and divert (energy) exports.