Russian attack | The war of aggression was supposed to destroy the Russian economy quickly, but the effects are becoming smaller than estimated

Economic|Russian invasion

Russian president Vladimir Putin launched the attack on Ukraine in an instant threw the Russian economy back years.

Today, Russia is scheduled to publish figures describing the development of the gross domestic product for the second quarter. It is the first full quarter since the war of aggression that began on February 24.

News agency According to Bloomberg’s forecast The Russian economy shrank by 4.7 percent year-on-year between March and June. The forecast is based on the median of 12 analysts’ estimates. In January–March, the national product grew by 3.5 percent.

Yet in March it was predicted that the impact of the war on the Russian economy will be significantly more dramatic. Back then, for example, Bloomberg’s forecast talked about a 10 percent contraction. Even in July, Bloomberg’s forecast estimates that the economy will contract by 4.7 percent.

“Four years of growth is erased from economic growth. We will return to the level of 2018 in the second quarter,” says the Russian economist Alexander Isakov For Bloomberg.

“We estimate that the economic contraction will moderate towards the end of the year and that loose monetary policy will support demand. Despite that, the economy will shrink by two percent next year when the European energy ban weakens exports,” continues Isakov.

The International Energy Agency (IEA) estimates that Russia’s crude oil production may shrink by up to 20 percent in August from the beginning of the year. Oil has by far been Russia’s most important export product. For example, in 2019, Russia exported crude oil worth around 112 billion euros.

According to the most recent data from Statistics Finland, energy worth about 3.3 billion euros was imported from Russia in January–September last year. More than half of this, 1.7 billion euros, was crude oil. In addition, Russian oil products worth about 560 million euros were imported.

Of all Russian imports, the share of oil and oil products last year was 41 percent.

Russian the central bank estimates that the country’s economy shrank by 4.3 percent in the second quarter. It predicts that the gross domestic product will shrink by 7 percent in June–September and possibly even more by the end of the year.

“The economic downturn will be much lighter than was estimated back in April. At the same time, demand shocks can have an effect for a longer period of time”, the Russian central bank estimated earlier in August.

According to the central bank, Russian inflation was around 15.1 percent in July. The country aims for 4 percent inflation. On Friday, the Central Bank will also present its monetary policy guidelines for the years 2023–2025.

Also In July, the International Monetary Fund (IMF) relaxed its assessment of the impact of the war and the sanctions initiated by Western countries on Russia’s economic growth.

According to the IMF’s July forecast, Russia’s gross domestic product will shrink by 6 percent this year. Back in April, it estimated that the national product would shrink by 8.5 percent.

However, the IMF raised its assessment of the impact of the sanctions on next year’s economic growth, as it estimates that the economy will shrink by 3.5 percent next year, or 1.2 percentage points more than the April forecast.

Forecasting Manager of the Institute of Economic Research Markku Lehmus emphasized to HS in July that the general picture of the plight of the Russian economy has remained somewhat unchanged, but the profile of the crisis has changed.

“The state and prospects of the Russian economy are very dark because of the sanctions. Based on the latest forecasts, this year’s economic contraction will be smaller than previously estimated, but the economic crisis will last longer than expected, for example, according to the Russian Central Bank. So the economy won’t necessarily crash, but it will stay in the lowlands for a long time,” Lehmus said.

Read more: Western countries make Russia suffer for its war: “The state of the economy and the prospects are very dark because of the sanctions”