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Russia resists the impact of the sanctions for the war but faces a “catastrophe in installments”

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Russia’s economy has managed to contain the short-term impact of the severe sanctions imposed by Western powers for its invasion of Ukraine, but in the medium term faces a “catastrophe in installments”, according to the Vienna Institute for International Economic Studies (wiiw). In its “Summer Forecasts”, published this Wednesday, the wiiw highlights the contrast between the “devastating” havoc caused by the Russian aggression in the Ukrainian economy, and how the aggressor has been able to avoid serious damage so far.

The wiiw forecasts that the Ukrainian economy will decrease by 38% this year, while it estimates a 7% decline in Russian GDP, two points less than calculated three months ago. “The Russian central bank acted very intelligently and linked the exchange rate to the price of oil,” explained the wiiw’s executive director, Mario Holzner, when presenting the report. He recalled that Russia, the world’s third largest oil producer and second exporterwas greatly benefited by the sharp increase in the price of “black gold”.

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However, the sanctionswill show their effect in the medium term“, as the industry is already suffering damage. Western technology, such as aircraft parts, cannot be easily replaced either, so Holzner sees a “very painful evolution for the Russian economy, both in the medium and long term”. The sanctions will mean “a catastrophe in time” for Russia, the expert assured. The biggest problem for Ukraine “is the blockade of the Black Sea ports”, which prevents the export of dozens of tons of sunflower seeds, wheat and other cereals. .

Since its transportation by other routes “is very difficult”, the wiiw anticipates that the situation will further drive up food prices around the world. Added to this, for Ukraine, is the damage caused by Russian bombing of buildings and infrastructure, which according to the wiiw “exceed 60% of GDP of the country in 2021″. Although the attacked nation is “adapting to the new reality of the war and is slowly recovering” some sectors of its economy, it is still below 40% of the capacities it had before February 24, when Russia launched its violent offensive.

In addition to the two countries at war, neighboring Belarus and Moldova are also facing a recession this year, as its GDP fell by 4.5% and 1%, respectively. In general, war, inflation and the energy crisis threaten to plunge Eastern and Southeastern Europe into a recession, warns the wiiw. “In May, (year-on-year) inflation rose to double digits in all 23 countries in the region that we monitor, with the exception of Slovenia,” the report said.

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For Bulgaria, Czech Republic, Estonia, Croatia, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia and Slovakia, the wiiw forecasts average inflation of 11% throughout 2022. Stresses that high food prices are a particularly serious problem for the population of the region, since they spend between 20 and 50% of their expenses on them, while in nearby Austria, for example, food It represents about 10% of the cost of a household. If these countries need to “ration oil and gas in winter, Eastern Europe could enter a recession,” warns the specialized institute.

Source: Lasexta

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