Russian Economics - GDP Could Decline by 10-15% in 2022

The prevailing geopolitical tension has resulted in huge supply chain disruptions and logistical problems between Russia and the West. Imports from the EU have collapsed, and there is now a major question mark over how much they might recover later. In this note, we discuss the outlook for Russian GDP. At present, we estimate that economic activity will likely decline by 10-15% in 2022, with inflation reaching 20-25%. But clearly the situation is extremely fluid right now, and we may have to amend our forecasts very soon.> Disruption to technology supply chains. This will affect industries that depend on imports of intermediate goods and technology. These industries include car manufacturing, electronics and tobacco. > Logistical disruptions. Russian imports of all goods from the EU will drop, which will be very negative for domestic retail and wholesale trade. > Sanctions against individuals and the threat of sanctions. Severstal has already stopped exporting to the EU. Tanker operators are hesitating over whether to ship Russian oil.> Sanctions against the financial sector. They will have a negative impact on value-added in the sector, which has been an important economic growth driver in the past.> Sanctions against airlines. No flights will be running to many destinations, at least in the short run. The US and EU bans on plane and component exports to Russia is a more severe threat in the long run.> Macroeconomic and geopolitical environment. Many foreigners have decided to quit investment projects in Russia. Meanwhile, the CBR's recent key rate hike was necessary to stabilize the financial markets, but it will slow economic activity.