Russia: Economic resilience amidst weakening recovery momentum and geopolitical uncertainty

The Russian economy weathered relatively well the Covid-19 impact, registering a rather moderate 2.7% GDP contraction in 2020 and bouncing back to an estimated 4.4% YoY in 2021. As for this year, we expect GDP growth to moderate to 2.7% YoY , a forecast th at heavily relies on a scenario of high energy prices , a coherent monetary policy and receding inflationary pressures. Yet, in a context when developed markets central banks are expected to start rising rates this year , and as geopolitical tensions in relation to the Ukrainian conflic t are rising sharply , risks to the central scenario clearly tilt to the downside. As of now , the situation at the Ukrainian border remains unclear, with Russian-NATO talks making little progress . We see broadly two possible outcomes: a de-escalation of tensions wit h the western/NATO countries on the one hand, or an armed conflic t . Needless to say that each will result in two opposite outcomes: the materialization of our central scenario in the first case, or a rather weaker outlook that could derive from the economic impact of the imposition of new western sanctions on Russia. Those sanctions may particularly hurt the Russian financial system and its banking sector, that has proved resilient during the pandemic. In the longer term, Russia will have to readdress its low potential growth while simultaneously setting into place its new ly announced Low-Carbon Development Strategy (Oct.2021), a difficult balancing act.