Russia is set to face a financially turbulent 2023 as sanctions imposed by the West following Vladimir Putin‘s invasion of Ukraine continue to bite, according to experts.
Reuters reported on Friday that a forecast among 15 analysts predicted that Russia’s economy would shrink by a further 2.5 percent next year in a contraction that is expected to be less sudden, but more prolonged, than initially predicted.
Soon after the invasion of Ukraine on February 24, forecasters said that Russia’s GDP in 2022 could fall by up to 15 percent. However, the analysts polled by Reuters stated that the figure likely stood at closer to three percent, suggesting that the Russian economy was more resilient than initially thought.
But speaking in Moscow on Friday, Chief economist at Russia’s private Alfa-Bank, Natalia Orlova, said that even if the downturn “is not as big as we all thought at first, this does not mean that we can go into next year peacefully.”
“We cannot rule out a deeper contraction next year when compared with 2022, it could be 5-6%,” she said, according to Reuters.
The poll of analysts also found that they expect inflation to accelerate to 12.1 percent, up from 8.4 percent in 2021.
Since Putin’s invasion on February 24, Russia’s economy has been hit by sanctions imposed by the European Union, the U.S. and other Western allies to curb Moscow’s ability to fund its war machine.
Western countries have frozen Russia’s access to some of its foreign reserves and kicked it out of the SWIFT global banking system, while the U.S. Treasury said it would restrict investors from buying Russia’s debt.
While Russia still benefited from high oil and gas prices, a move by the G7 countries coming into effect on Monday will see Western allies cap a barrel of seaborne Russian oil at $60.
“The sanctions already in place that limit Russia’s access to high technological inputs into the energy sector upon which it is singularly reliant, will likely have an even more profound impact on Russia’s fiscal viability,” said Abby Schrader, history professor at Franklin & Marshall College, Pennsylvania.
These sanctions combined with the oil price cap and Russia’s diminishing currency reserves “could cripple the Russian economy,” she told Newsweek.
In a blog post for the Wilson Center think tank last month, Boris Grozovski wrote that Putin’s partial mobilization of troops “has done to the Russian economy what the West’s sanctions have so far failed to do.”
Hundreds of thousands of Russian men have fled the country and in addition to declining demand for their products, many businesses now face a shortage of experienced staff.
He noted the draft was linked to a “noticeable decline” in the real estate market, the demand for credit as well as consumer sentiment.
The knock on effects have included an increase in bad loans and a decline in demand for things like restaurants and other services.
Non-oil and gas budget revenues for the Russian coffers were 20 percent lower in October 2022 than a year earlier, and the decline in revenues is forcing the government to raise taxes, cut non-war spending, and resort to debt, he said.
“The population has begun to suspect that Putin’s military adventure is taking place at their expense,” Grozovski wrote.
Dave Gulley, professor of economics at Bentley University, Massachusetts, said that the sanctions on energy and technology and the curbing of Russia’s ability to move and access funds around the world were having “a material impact on the Russian economy.”
“Combined, they are having a serious impact that will likely increase over time if they are maintained and enforced,” he told Newsweek. “Aside from the sanctions, the internal costs are very important. For example, tens of thousands of highly skilled Russians have left the country.”
Newsweek has contacted the Kremlin for comment.
“Russia’s Economy is Being Slowly Asphyxiated”
This report – like so many others since the war started – is patting on the own shoulder. A slow asphyxiation is not good enough. An immediate strangulation would’ve been better. It would’ve saved X number of lives and ended the war sooner. But, as usual, the West does things only half-assed.