Russian economy to lose nearly third of its value
Russia’s economy will be plunged into turmoil this year as a result of the country being frozen out of the global economy in retaliation to Moscow invading Ukraine.
The country’s output will tumble around 30 per cent this year, far worse than the amount it lost during the financial crisis, according to forecasts by the Institute of International Finance (IIF).
Western sanctions have hobbled the Russian economy, with the rouble, the country’s currency, plunging to new depths against the dollar.
Russia’s central bank’s reserves have been frozen, limiting the institution’s scope to protect the currency and the economy by using dollar, euro and gold reserves to buy rouble-denominated assets.
Russian banks have also been booted from the Swift global payments system.
Several top credit ratings agencies have sounded the alarm over an imminent default on Russian sovereign debt.
Moscow defaulted on its debts in the late 1990s, triggering severe volatility within the country’s financial system. However, this was on domestic debt, meaning foreign investors were largely shielded from losses.
This time around, there is a high risk Russia will default on its foreign debt obligations due to a low willingness to pay back investors in dollars or euros to stop capital from flowing out of the country.
Robin Brooks, chief economist at the IIF, said: “Sanctions are tightening financial conditions hugely… which will choke off domestic demand. Russia can print money to ease this crunch, but that’ll just bring a devaluation-hyperinflation spiral.”