Goldman and Barclays forecast double-digit contraction for Russia

Economists at Barclays Plc and Goldman Sachs Group Inc. lowered their forecasts for Russia and now see a double-digit contraction in output this year, the latest in a series of revisions incorporating the increased severity of Ukraine invasion sanctions. .

Barclays published one of its most dovish outlooks yet, reversing its previous growth estimates and projecting a 12.4% contraction in 2022 and a 3.5% drop the following year. Goldman lowered its forecast for this year and now sees a 10% decline, down from a 7% drop it previously projected.

“Due to the current geopolitical conditions, we assume that the sanctions will be long-lastingBarclays economists, including Brahim Razgallah, said in a note.

“The economic slowdown will be gradual and will accelerate in mid-2022, as the repercussions of the sanctions are fully transferred to the economy”, noted the economists. “We expect the economic contraction to be driven by falling private consumption, investment and imports.”

Just over three weeks after President Vladimir Putin ordered the Russian military to attack Ukraine, an economy poised to expand for the second year in a row is sinking into its biggest recession this century.

Putin warned that the country faces rising unemployment and inflation as it adjusts to what he described as a “economic blitzkrieg” of international sanctions. The initial projection from Bloomberg Economics is that Russia’s full-year GDP will fall by around 9% in 2022.

Goldman economists, led by Clemens Grafe, said in a note that “Russian exports have been more affected than we had initially assumed”, which explains about half of the downward revision of the bank’s outlook. Goldman’s hypothesis is that Russia’s gas exports will continue unabated, but its oil shipments will fall by about 20%.

It now expects exports to decline 20% sequentially in the second quarter and 10% for the year. Goldman also forecasts a 20% drop in import volume in 2022.

At the same time, the products that Russia exports rely on few imported parts, according to Goldman. In the case of mining, only 7% of intermediate purchases of goods and services in the sector depend on imports, he said, citing the latest available data for 2019.

less integrated

“The impact of trade sanctions on Russia is unlikely to be as damaging to the economy as it would be to other economies that are more integrated into global supply chains.Goldman said.

The American bank foresees a “slow recovery”, with positive growth next year. GDP is estimated to expand 2.4% in 2023 and 3.4% in 2024, according to the bank.

The picture is much less bleak for Russia’s finances. In the absence of further trade restrictions and with high commodity prices, Barclays believes that Russia will be able to finance its main spending needs.

In Goldman’s view, Russia’s current account surplus is improving slightly despite sharp falls in imports and exports.

He now expects the current account balance, the broadest measure of trade in goods and services, to hit a record $205 billion in 2022, on the assumption that Russia will continue to pay its debt and allow dividend payments.