Bloomberg: a report with a forecast for a “deep recession” has been prepared for the Russian government, experts have presented a report to the Russian government with three scenarios of the consequences of sanctions, each of which excludes GDP growth until at least 2024. The Ministry of Economic Development previously predicted a return to growth in two years According to an internal report prepared for the Russian government, the country may face a longer and deeper recession as the impact of American and European sanctions increases. This is reported by Bloomberg with reference to the relevant document. According to the agency, the document is the result of months of work by officials and experts who were tasked with assessing the impact of Western sanctions. It was presented at a closed meeting in the Russian government on August 30. The report paints a more “gloomy picture” than previously reported by Russian agencies, writes Bloomberg. It follows from the reference that the real prospects for economic growth in Russia are limited, and each of the presented scenarios assumes a drop in GDP until at least 2024. In total, experts identified three such scenarios: All scenarios, according to Bloomberg, suggest an increase in sanctions pressure, including from countries that have so far taken a neutral position.
In addition to the restrictions that affected about a quarter of Russian imports and exports, the report describes in detail how Russia is already facing a blockade that has affected almost all types of transportation, which has further limited the country’s economic potential.
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“According to the report, production volumes in a number of export-oriented sectors, from oil and gas to metals, chemicals and wood products, may decrease over the next year or two. Although some rebound is possible later, and these sectors will cease to be drivers of the economy,” Bloomberg says.
According to the report, the complete cessation of gas supplies to Europe could cost the budget 400 billion rubles ($6.6 billion) a year in the form of lost tax revenues. It will not be possible to fully compensate for lost sales with 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 sanctions will be more affected:
- Agriculture: seeds for basic products such as sugar beet and potatoes, fish feed and amino acids;
- Aviation: lack of access to imported spare parts may lead to a reduction in the fleet as they are decommissioned;
- Mechanical engineering: Russia produces only 30% of the required machines, and the local industry is not able to meet the growing demand;
- Pharmaceuticals: about 80% of domestic production depends on imported raw materials;
- Communication 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 world leaders by five years;
- Metals: due to sanctions, metal producers will lose up to $5.7 billion per year;
- IT: by 2025, up to 200 thousand IT specialists may leave the country.
At the same time, the authors of the report listed measures to support the Russian economy and further weaken the impact of sanctions. These steps, the agency points out, are aimed at restoring the economy to the level of 2021 by 2024 and include many of the measures to stimulate investment that the government has announced over the past ten years.
In March 2022, after the introduction of tough Western sanctions, the Russian authorities and independent economists gave extremely negative forecasts on the dynamics of Russia’s economic development. The Ministry of Economy predicted a 10% decline in GDP for this year; analysts surveyed by the Central Bank in March assumed a contraction of the economy from 3.5 to 23% with a consensus forecast of minus 8%.
However, six months later, most forecasts were adjusted, as the impact of sanctions turned out to be less destructive than expected. At the end of August, First Deputy Prime Minister Andrei Belousov said that in 2022 the decline in GDP could be less than 3%. Next year, Russia has a chance to get a result of minus 0.6%, he believes.
According to the Ministry of Economic Development, the decline in Russia’s GDP in July slowed to 4.3% in annual terms after minus 4.9% in June. As a result, at the end of seven months, the decline was 1.1% compared to the same period last year. According to the latest forecast of the Ministry, in 2022 and 2023, GDP will fall by 4.2 and 2.7%, respectively, and only in 2024 will it return to growth (by 3.7%).
The unemployment situation is stable (it has been at historical lows for the third month in a row – 3.9% of the workforce), and real wages of the population decreased by 3.2% in June, although in May the decline reached 6.1%, follows from Rosstat data. The main contribution to wage growth was made by such industries as coal mining (+31.3%), agriculture (+22.6%, including fishing (+41.8%), as well as the production of building materials (+20.8%) and construction (+19.8%).
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