The West is trying to destroy Russia’s economy. And analysts think it could succeed

“While exports are, in principle, not significantly restricted by the sanctions so far, we expect them to contract by 5%yoy because of the physical disruption of exports through the Black Sea ports, which are instrumental for dry bulk exports, and the risk of sanctions reducing other exports.”

This scale of decline is similar to the 7.5% fall during the 2008/9 financial crisis and the 6.8% contraction during Russia’s financial crisis in 1998.

“The ratcheting up of Western sanctions, alongside a tightening of financial conditions and the prospect of a banking crisis, mean that Russia’s economy is likely to experience a sharp contraction this year,” Liam Peach, emerging markets economist at Capital Economics, said in a note Tuesday.

Although the outlook remains highly uncertain, Capital Economics’ baseline forecast is for a 5% contraction in Russian GDP in 2022 compared with its previous forecast for 2.5% growth, and for annual inflation to reach 15% this summer.

Peach suggested that a worst-case scenario for Russia in terms of international sanctions would involve restrictions on the flow of oil and gas, which represents about half of all goods exports and a third of government revenue.

“Restricting these would also choke off a key source of dollar incomes for energy companies that have FX debts and perhaps cause a much more significant financial crisis in Russia,” he added.

Depth of recession depends on exports, China

Steven Bell, chief economist at BMO Global Asset Management, said Russia is now facing a “serious financial crisis,” with the role of China becoming ever more important to Moscow due to its demand for raw materials and energy.

“Russia has also moved a large portion of their foreign exchange reserves into the Chinese currency and switched their payment systems to Chinese banks. China may hold the key to Russia’s ability to sustain the conflict,” Bell added.

As yet, there are no sanctions on Russian exports, and SWIFT exclusions are targeted at specific banks to allow export payments to continue being processed. Goldman Sachs’ Grafe suggested that this might not be the case much longer.

Article source: https://www.cnbc.com/2022/03/03/ukraine-analysts-think-western-sanctions-may-destroy-russias-economy.html