Ukraine War Will Push Russian Economy Back 15 Years, As Energy Demand Drops

Russia's Ukraine invasion is now expected to wipe out 15 years of economic growth as its economy is contracting 15% this year, with a further decline anticipated for 2023. 

While Russia has benefited from higher oil prices, those rising costs are depressing demand, which will likely lead to lower prices and Russian revenues in coming months. This is partly why Putin is so anxious to achieve some sort of victory now, before his economy truly collapses. JL 

Kieran Corcoran reports in Business Insider, image Philippe Desmazes, AFP:

Vladimir Putin's invasion of Ukraine will wipe out 15 years of economic growth in Russia, according to an influential association of finance experts, the Institute of International Finance, (comprised) of representatives from global finance firms. The group predicted that Russia's economy would contract by 15% in 2022 and a further 3% in 2023. Russian receipts from imports increased after the invasion, thanks to rising energy prices. But Russia would feel only a short-lived benefit from that (as) its isolation from Western markets would be far more significant. With demand for energy declining in many parts of the world, it's had to offer fuel at huge discounts.

Vladimir Putin's invasion of Ukraine will wipe out 15 years of economic growth in Russia, according to an influential association of finance experts.

The prediction was made by the Institute of International Finance, a collective made of representatives from global finance firms. It was reported Wednesday by the Reuters news agency.

The group cited several repercussions from the invasion that would hit Russia's finances hard. It estimated the damage would drag the economy back to around its size in 2007.

The main three were:

 

Companies pulling out of Russia and laying off workers.

• A collapse in exports thanks to sanctions.
• Talented Russians leaving the country.

The group predicted that Russia's economy would contract by 15% in 2022 and a further 3% in 2023.

It said the picture could become even worse for Russia depending on how quickly countries in Europe make good on their plan to stop consuming Russian oil and gas.

The EU agreed to stop around 90% of Russian oil imports by the end of the year, but has said that stopping natural-gas imports from Russia would take much longer.

Russia is teetering on the brink of a historic debt default as it has encountered more and more difficulties in paying its foreign creditors after having been cut out of the financial system. Domestic capital controls have shored up its currency, but with demand for energy declining in many parts of the world, it's had to offer fuel at huge discounts, particularly crude oil.

The IIF report acknowledged that Russian receipts from imports actually increased after the invasion, thanks largely to rising energy prices.

But its experts said Russia would feel only a short-lived benefit from that phenomenon, and that its isolation from Western markets would be far more significant and erode its economy.