The war between Russia and Ukraine will lead to a recession in the global economy – analysts have already adjusted downward the forecast for GDP growth in the US and the Eurozone. But all this is trifles compared to what awaits Russia itself – according to many experts, a crisis may break out, which has not yet happened in the country’s recent history.
We figured out what will be the main indicators of the Russian economy that directly affect the lives of ordinary people. Some experts commented on the coming crisis exclusively off the record, since even talking about its real scale, in their opinion, is already dangerous.
Plan “Fortress”
The Russian economy has been closing in on itself since 2014.
“We were weakly involved in the global division of labor, and many processes took place within the country. Given that we have our own raw materials, it seemed that nothing else was needed to produce goods, ”says Evgeny Nadorshin, chief economist at PF-Capital.
Recently, the plan “Fortress – all around enemies” was implemented especially clearly – what is it worth leaked in the media, information that a month before the start of the war, analysts of the Central Bank, Sberbank and VTB calculated what economic consequences the conflict would lead to. True, at that time the recognition of the sovereignty of the self-proclaimed “DPR” and “LPR” was considered as the most severe scenario – no one could have imagined that it would come to a full-scale war.
According to the calculations of financiers, even in the event of the occupation of part of Ukraine, this will lead to a strong drop, GDP – by about 10%, a sharp increase in unemployment – up to 12%, a decrease in household incomes, an increase in the key rate up to 20-30%, an increase in the dollar exchange rate up to 150 -200 rubles and, of course, the delay in the development of the country due to technology embargo. Now even these forecasts look optimistic.
Macroeconomic stability was based on the belief that Russia could weather external shocks by exporting hydrocarbons, which no one could refuse. And due to the huge gold and foreign exchange reserves, on which you can definitely live for several years. But the government’s panic decisions – the forced conversion of foreign currency deposits, the most severe foreign exchange controls, the obligation of exporters to sell 80% of foreign exchange earnings – indicate that the authorities were not ready for such a serious confrontation with the entire Western world.
The export of hydrocarbons may be seriously affected – the United States, Canada, and some other countries are refusing Russian oil and gas. So far, this does not greatly affect the volume of shipments of energy carriers, but this is only the beginning. The European Union has already set a goal – to gradually abandon the export of resources from Russia, informs Reuters. This pillar of the Russian economy is not exactly collapsed, but seriously staggers.
“The fact that the West is determined to do it now, in my opinion, is obvious, and no one, especially living in the neighborhood, will count on such an unreliable supplier,” said recently economist Oleg Buklemishev.
With the reserves of the Central Bank, too, not all is well. The government was clearly not prepared for the fact that half of the $630 billion would be frozen. A significant portion of the government’s remaining funds are in the form of gold in vaults, which is a low-liquid asset. It is clear that it is difficult to sell a large batch of gold at once, it will simply bring down the market. Plus, it’s quite difficult to do from a technical point of view.
Since the beginning of the war, the Central Bank has not carried out foreign exchange interventions to maintain the exchange rate, which means that there are simply no funds for this. For the first time in recent history, the threat of default on foreign obligations hung over Russia. In March, the country must pay its creditors about $700 million, a ridiculous sum in pre-war times. But the Central Bank may not even have this money, all Western rating agencies believe. Fitch has downgraded Russia’s long-term foreign currency rating from B to C.
“The downgrade to C reflects Fitch’s view that a sovereign default is imminent,” indicated agency report.
It turns out that the Russian economy, although it was preparing for a siege, is already suffering huge losses. And what will happen by the end of the year?
What will happen next
Economists make rather pessimistic forecasts about the future. For example, JPMorgan Chase and Goldman Sachs write about a 7% drop in GDP this year. Bloomberg Economics thinksthat the economic recession will be 9%, and if sanctions are introduced against the export of oil and gas (and this is exactly what is happening now), then all 14%. The Institute of International Finance (a major international analytical organization) believes that by the end of the year, a 15% reduction in GDP can be expected.
“Russia will never be the same” He speaks IIF Chief Economist Robin Brooks.
In the published macroeconomic survey of the Central Bank (compiled on the basis of data collected from 34 banks, investment companies, expert institutions), indicatedthat in 2022 GDP will decrease by 8%.
As for the rise in prices, there are also many assessments on this score. The inflation shock has already arrived, according to Rosstat data. In just one week, from February 26 to March 4, consumer prices rose by 2.22%. And these are just flowers, one of the interviewed experts says off the record. So far, the effect of the strong depreciation of the ruble and import restrictions has been little reflected in inflation statistics, but the impact of these factors on consumer price dynamics will manifest itself much faster than it was in previous periods of significant weakening of the Russian currency. Previously, there was a lag of 3-6 months between this event and the acceleration of inflation.
“Now, retail chains are preemptively pricing not only a strong rise in the price of foreign currency against the ruble, but also a possible continuation of this trend, since there is great uncertainty with the dynamics of the ruble exchange rate,” says the analyst.
In a macroeconomic survey by the Central Bank, economists expect inflation to reach 20%. Analysts of a large investment company, who agreed to comment off the record because “everything is so terrible that it is unsafe to talk about it,” believe that inflation by the end of the year will go beyond 40%.
There are also more optimistic forecasts. Evgeny Nadorshin from PF-Capital believes that inflation by the end of the year could reach 9.8%.
“With a high degree of probability, farmers will provide a good harvest, and for those commodity items that we see on the domestic market, as a result, a reasonable level of inflation may turn out,” he says.
However, inflation is different for different groups of the population. Those people who, by European standards, can be considered poor will suffer, but the impact of the economic crisis on them will still be less than on the conditional middle class.
“Customers of Perekrestok and Miratorg will feel the economic crisis more than others. They will get the least support and the most problems. All these restrictions – from stopping imports of iPhones and clothing to closing borders for tourist travel – will affect, first of all, the middle class. Their standard of living will decrease,” says Nadorshin.
With such inflation, loans become meaningless. Experts of a large investment company believe that the volume of loans will be close to zero – no one needs loans with a rate of more than 30% per annum. But not everyone agrees with this.
Most likely, the authorities will introduce a program of preferential mortgages to support the construction sector, Nadorshin believes. Now the situation for developers is difficult: huge volumes of housing commissioning with greatly reduced demand.
“There will be a preferential program with a single-valued interest rate. “Regular” mortgages will have double-digit rates and little demand,” Nadorshin believes.
The absence of credit as one of the drivers of development and the general decline in activity in all areas will lead to an increase in unemployment. Some economists believe that its level will increase, but this will not lead to catastrophic consequences.
“Four factors will affect the growth of unemployment – recession, raising the retirement age, the exit of foreign companies from the market, the smooth introduction of automation solutions. However, the authorities will not allow unemployment to rise much. The level will gradually increase and reach about 6% by 2024,” says Nadorshin.
Other experts do not agree with such assessments. Some believe that only the official unemployment rate (which is lower than the real one) will be more than 15% of the economically active population. This is easy to believe, looking at how many large foreign companies have left the market. McDonald’s alone, which temporarily closed restaurants, has more than 62,000 employees across the country. According to the Labor Code, they cannot be fired at once, the company is obliged to pay them a salary of three to five months. But then they will most likely have to look for a new job. According to Statista, the companies that stopped their activities in Russia employed about 120,000 people.
The number of those who will be fired will be even greater – not all foreign players have left the “toxic” jurisdiction for them yet.
Life at a gas station: what will it lead to
An economic depression can spread like a chain reaction. A simple example: Avtovaz suspends the assembly of cars due to a shortage of electronic components. Kamaz also has problems with components – their supplies from Europe are frozen. If the conveyors of factories freeze for a long time, then this threatens not only with mass layoffs of employees of enterprises. Automakers stop buying products from hundreds of Russian suppliers, and, in particular, from those who produce steel. Steelmakers, in turn, reduce the order for coking coal, and so on.
It is difficult to calculate the global consequences of the “domino effect” now. But everyone agrees on one thing: it will only get worse.
“We hit an ice trough, like on a bobsleigh track, and we’re rolling down it … Life will be much harder,” he said recently in interview DW Sergey Aleksashenko, who was previously Deputy Minister of Finance and First Deputy Chairman of the Central Bank.
Problems in the economy will inevitably lead to an increase in social tension in society – this is both an increase in crime and an increase in the level of dissatisfaction with the authorities.
“Now we are facing a complete economic blackout. But I’m talking about this as a psychologist. What is economic blackout? A change in lifestyle will lead to a serious shock. The silence will end, thinks famous psychologist Alexander Asmolov.
What will happen after the “silence ends”, no one knows now.
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The war between Russia and Ukraine will lead to a recession in the global economy – analysts have already adjusted downward the forecast for GDP growth in the US and the Eurozone. But all this is trifles compared to what awaits Russia itself – according to many experts, a crisis may break out, which has not yet happened in the country’s recent history.
We figured out what will be the main indicators of the Russian economy that directly affect the lives of ordinary people. Some experts commented on the coming crisis exclusively off the record, since even talking about its real scale, in their opinion, is already dangerous.
Plan “Fortress”
The Russian economy has been closing in on itself since 2014.
“We were weakly involved in the global division of labor, and many processes took place within the country. Given that we have our own raw materials, it seemed that nothing else was needed to produce goods, ”says Evgeny Nadorshin, chief economist at PF-Capital.
Recently, the plan “Fortress – all around enemies” was implemented especially clearly – what is it worth leaked in the media, information that a month before the start of the war, analysts of the Central Bank, Sberbank and VTB calculated what economic consequences the conflict would lead to. True, at that time the recognition of the sovereignty of the self-proclaimed “DPR” and “LPR” was considered as the most severe scenario – no one could have imagined that it would come to a full-scale war.
According to the calculations of financiers, even in the event of the occupation of part of Ukraine, this will lead to a strong drop, GDP – by about 10%, a sharp increase in unemployment – up to 12%, a decrease in household incomes, an increase in the key rate up to 20-30%, an increase in the dollar exchange rate up to 150 -200 rubles and, of course, the delay in the development of the country due to technology embargo. Now even these forecasts look optimistic.
Macroeconomic stability was based on the belief that Russia could weather external shocks by exporting hydrocarbons, which no one could refuse. And due to the huge gold and foreign exchange reserves, on which you can definitely live for several years. But the government’s panic decisions – the forced conversion of foreign currency deposits, the most severe foreign exchange controls, the obligation of exporters to sell 80% of foreign exchange earnings – indicate that the authorities were not ready for such a serious confrontation with the entire Western world.
The export of hydrocarbons may be seriously affected – the United States, Canada, and some other countries are refusing Russian oil and gas. So far, this does not greatly affect the volume of shipments of energy carriers, but this is only the beginning. The European Union has already set a goal – to gradually abandon the export of resources from Russia, informs Reuters. This pillar of the Russian economy is not exactly collapsed, but seriously staggers.
“The fact that the West is determined to do it now, in my opinion, is obvious, and no one, especially living in the neighborhood, will count on such an unreliable supplier,” said recently economist Oleg Buklemishev.
With the reserves of the Central Bank, too, not all is well. The government was clearly not prepared for the fact that half of the $630 billion would be frozen. A significant portion of the government’s remaining funds are in the form of gold in vaults, which is a low-liquid asset. It is clear that it is difficult to sell a large batch of gold at once, it will simply bring down the market. Plus, it’s quite difficult to do from a technical point of view.
Since the beginning of the war, the Central Bank has not carried out foreign exchange interventions to maintain the exchange rate, which means that there are simply no funds for this. For the first time in recent history, the threat of default on foreign obligations hung over Russia. In March, the country must pay its creditors about $700 million, a ridiculous sum in pre-war times. But the Central Bank may not even have this money, all Western rating agencies believe. Fitch has downgraded Russia’s long-term foreign currency rating from B to C.
“The downgrade to C reflects Fitch’s view that a sovereign default is imminent,” indicated agency report.
It turns out that the Russian economy, although it was preparing for a siege, is already suffering huge losses. And what will happen by the end of the year?
What will happen next
Economists make rather pessimistic forecasts about the future. For example, JPMorgan Chase and Goldman Sachs write about a 7% drop in GDP this year. Bloomberg Economics thinksthat the economic recession will be 9%, and if sanctions are introduced against the export of oil and gas (and this is exactly what is happening now), then all 14%. The Institute of International Finance (a major international analytical organization) believes that by the end of the year, a 15% reduction in GDP can be expected.
“Russia will never be the same” He speaks IIF Chief Economist Robin Brooks.
In the published macroeconomic survey of the Central Bank (compiled on the basis of data collected from 34 banks, investment companies, expert institutions), indicatedthat in 2022 GDP will decrease by 8%.
As for the rise in prices, there are also many assessments on this score. The inflation shock has already arrived, according to Rosstat data. In just one week, from February 26 to March 4, consumer prices rose by 2.22%. And these are just flowers, one of the interviewed experts says off the record. So far, the effect of the strong depreciation of the ruble and import restrictions has been little reflected in inflation statistics, but the impact of these factors on consumer price dynamics will manifest itself much faster than it was in previous periods of significant weakening of the Russian currency. Previously, there was a lag of 3-6 months between this event and the acceleration of inflation.
“Now, retail chains are preemptively pricing not only a strong rise in the price of foreign currency against the ruble, but also a possible continuation of this trend, since there is great uncertainty with the dynamics of the ruble exchange rate,” says the analyst.
In a macroeconomic survey by the Central Bank, economists expect inflation to reach 20%. Analysts of a large investment company, who agreed to comment off the record because “everything is so terrible that it is unsafe to talk about it,” believe that inflation by the end of the year will go beyond 40%.
There are also more optimistic forecasts. Evgeny Nadorshin from PF-Capital believes that inflation by the end of the year could reach 9.8%.
“With a high degree of probability, farmers will provide a good harvest, and for those commodity items that we see on the domestic market, as a result, a reasonable level of inflation may turn out,” he says.
However, inflation is different for different groups of the population. Those people who, by European standards, can be considered poor will suffer, but the impact of the economic crisis on them will still be less than on the conditional middle class.
“Customers of Perekrestok and Miratorg will feel the economic crisis more than others. They will get the least support and the most problems. All these restrictions – from stopping imports of iPhones and clothing to closing borders for tourist travel – will affect, first of all, the middle class. Their standard of living will decrease,” says Nadorshin.
With such inflation, loans become meaningless. Experts of a large investment company believe that the volume of loans will be close to zero – no one needs loans with a rate of more than 30% per annum. But not everyone agrees with this.
Most likely, the authorities will introduce a program of preferential mortgages to support the construction sector, Nadorshin believes. Now the situation for developers is difficult: huge volumes of housing commissioning with greatly reduced demand.
“There will be a preferential program with a single-valued interest rate. “Regular” mortgages will have double-digit rates and little demand,” Nadorshin believes.
The absence of credit as one of the drivers of development and the general decline in activity in all areas will lead to an increase in unemployment. Some economists believe that its level will increase, but this will not lead to catastrophic consequences.
“Four factors will affect the growth of unemployment – recession, raising the retirement age, the exit of foreign companies from the market, the smooth introduction of automation solutions. However, the authorities will not allow unemployment to rise much. The level will gradually increase and reach about 6% by 2024,” says Nadorshin.
Other experts do not agree with such assessments. Some believe that only the official unemployment rate (which is lower than the real one) will be more than 15% of the economically active population. This is easy to believe, looking at how many large foreign companies have left the market. McDonald’s alone, which temporarily closed restaurants, has more than 62,000 employees across the country. According to the Labor Code, they cannot be fired at once, the company is obliged to pay them a salary of three to five months. But then they will most likely have to look for a new job. According to Statista, the companies that stopped their activities in Russia employed about 120,000 people.
The number of those who will be fired will be even greater – not all foreign players have left the “toxic” jurisdiction for them yet.
Life at a gas station: what will it lead to
An economic depression can spread like a chain reaction. A simple example: Avtovaz suspends the assembly of cars due to a shortage of electronic components. Kamaz also has problems with components – their supplies from Europe are frozen. If the conveyors of factories freeze for a long time, then this threatens not only with mass layoffs of employees of enterprises. Automakers stop buying products from hundreds of Russian suppliers, and, in particular, from those who produce steel. Steelmakers, in turn, reduce the order for coking coal, and so on.
It is difficult to calculate the global consequences of the “domino effect” now. But everyone agrees on one thing: it will only get worse.
“We hit an ice trough, like on a bobsleigh track, and we’re rolling down it … Life will be much harder,” he said recently in interview DW Sergey Aleksashenko, who was previously Deputy Minister of Finance and First Deputy Chairman of the Central Bank.
Problems in the economy will inevitably lead to an increase in social tension in society – this is both an increase in crime and an increase in the level of dissatisfaction with the authorities.
“Now we are facing a complete economic blackout. But I’m talking about this as a psychologist. What is economic blackout? A change in lifestyle will lead to a serious shock. The silence will end, thinks famous psychologist Alexander Asmolov.
What will happen after the “silence ends”, no one knows now.
Subscribe to Cryplogger news in Telegram: Cryplogger Feed – the entire news feed, Cryplogger — the most important news, infographics and opinions.
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