Russia to See Worst Slowdown of any Major Economy This Year

November 2, 2022

Russia is set for the most severe economic slowdown of any major economy this year amid the fallout from its invasion of Ukraine, according to new projections from its central bank, and economists expect the situation to worsen as the windfall from high energy prices fade.

The central bank is forecasting a drop in gross domestic product of between 3% and 3.5% this year, substantially less than predictions made immediately after the invasion. The bank initially expected GDP to contract by between 8% and 10%. Prior to the invasion, Russia forecast GDP growth of 3% in 2022. That means the war has cost the country more than 7% of its GDP in lost output this year alone.

The better-than-expected outlook is due primarily to surging revenue from energy exports, which have cushioned the impact of sanctions and western companies pulling out of the nation. A new report from research institute Bruegel estimates that higher energy prices have boosted Russia’s revenue from energy exports by $120 billion in the first nine months of the year. The researchers estimate that Russia will record a surplus in its income from the rest of the world over its expenditures there of $240 billion in 2022, which will fall to $100 billion in 2023. 

However, economists believe that the increase in revenue will be short-lived and that the nation’s energy sector will never return to past levels. A recent report from the International Energy Agency predicts that Russia will suffer a permanent decline in energy production as a result of the invasion and Europe’s subsequent lack of trust in the nation. According to the report, “Russian fossil fuel exports never return—in any of our scenarios—to the levels seen in 2021.”

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