Russia has so far weathered the economic impact of war and sanctions better than even our more optimistic analyst was forecasting early last year. GDP likely fell 3.6% in 2022—a far cry from the 10.2% downturn expected in our May 2022 report. Multiple factors explain this surprisingly robust performance. In particular, sky-high energy prices have buoyed government coffers and permitted fiscal largesse. Moreover, the Central Bank has succeeded at stabilizing the ruble—dampening inflation—and has in recent months slashed its policy rate to below 2021 levels. Rock-bottom unemployment and the reorienting of manufacturing towards military output have also provided support.
In 2023, we see more of the same: A continued economic decline, like air deflating gradually from a balloon, but no large-scale collapse. The Consensus among our analysts is for a 3.0% contraction. The energy sector will take a hit from the EU’s ban on Russian oil exports and the G7’s oil price cap, as well as lower exports of natural gas to Europe. However, the range in our analysts’ forecasts is huge; the most optimistic is for a 0.8% expansion, and the most pessimistic is for a 12.3% decline.
As expected, the war in Ukraine will be the key determinant of the outlook. If Russia is forced to call up more troops, this would likely spark emigration and reduce the size of the consumer market; it is estimated that hundreds of thousands of Russians fled the country following the partial mobilization in September 2022 for instance. On the flipside, a ceasefire would be growth-positive as it would likely lead some Russians to return home and reduce trade disruption.
An escalation of the conflict—such as the use of tactical nuclear weapons or strikes on NATO territory—would risk a full-blown war with the West and potentially huge economic damage. Although in such an apocalyptic scenario, the decline in GDP would be the least of anyone’s concerns.
Insights from Our Analyst Network
On Russia’s near-term outlook, Goldman Sachs analysts said:
“We think that the annual growth will remain negative until mid-2023, although sequentially growth will likely be relatively flat with domestic demand being supported by a fiscal boost and a normalisation of private sector savings rates while net exports will likely continue to contribute negatively as imports recover. We forecast above consensus growth of -3.3% for 2022 and -1.3% for 2023.”
On the longer-term economic outlook, analysts at EIU said:
“Russia’s fiscal capacity will be stretched in 2023. The high costs of the war and sanctions on the economy will put pressure on the federal budget. To maintain social support, the government will start drawing down reserves from its National Wealth Fund. We expect Russia to be the worst-performing G20 economy in 2023 and among the worst performing globally. The impact of sanctions will delay the economic recovery; we expect real GDP to recover to 2021 levels only in 2029 (at the earliest).”