Russian economy to shrink by Dh917 billion in 2022

The Russian economy will shrink by about $250 billion (over Dh917 billion) due to the sanctions imposed by Western countries in the wake of the military conflict with Ukraine, resulting in its decline in its global ranking also among the top economies, say economists.

Since President Vladimir Putin asked the Russian military to launch an offensive on Ukraine, the US and many European countries have imposed economic and financial sanctions against the Russian companies and freezing assets of high net worth individuals.

Thousands of people have reportedly died and sustained injuries in the 11-day long war while around 1.5 million Ukrainian have sought refuge in neighbouring countries.

Economists noted that the crisis will also push the Russian economy into recession as well.

“One immediate effect of the war in Ukraine will be to push Russia several places down the league table of the world’s largest economies. Accordingly, the immediate effect of the war will be to significantly reduce the size of Russia’s economy as a share of global GDP. At the end of last year, Russia was the world’s 11th largest economy with a GDP of $1.65 trillion. By the end of this year, we think it could fall to 14th place with a GDP of $1.4 trillion,” says Neil Shearing, group chief economist at Capital Economics.

He noted that the war is likely to provoke policy shifts in many areas, including energy as European nations are likely to accelerate their transition away from fossil fuels in favour of renewables to reduce dependence on Russia.

“The war, and in particular the response to it by Western governments, has already caused a major economic and financial crisis in Russia,” he added.

As the West isolates Russia’s economy by delinking it from the international banking system known as SWIFT, the rouble has lost more than 30 per cent of its value against the US dollar since the war began.

Similarly, Russian billionaires’ fortunes have also dwindled since February 24, when Moscow launched a military attack, falling by around $88 billion (Dh323 billion), according to Bloomberg Billionaires Index.

The biggest losers among Russian billionaires include Lukoil chairman Vagit Alekperov, Norilsk Nickel president Vladimir Potanin, Ural Mining and Metallurgical Co. president Iskandar Makhmudov, Severstal chairman Alexei Mordashov and Volga Group founder Gennady Timchenko among others.

Stéphane Monier, chief investment officer, Banque Lombard Odier & Cie SA, said the attack on Ukraine will undermine Russia’s short and long-term prospects and drive its economy into recession.

“Western sanctions will severely undermine Russia’s short-term outlook for both growth and inflation… While Putin looks willing to sacrifice Russia’s economy for geopolitical gain, the country may become even more strategically dependent on China,” added Monier.

Kristalina Georgieva, managing director of International Monetary Fund, said while the situation remains highly fluid and the outlook is subject to extraordinary uncertainty, the economic consequences are already very serious.

“Should the conflict escalate, the economic damage would be all the more devastating. The sanctions on Russia will also have a substantial impact on the global economy and financial markets, with significant spillovers to other countries,” added Georgieva.

— waheedabbas@khaleejtimes.com