Moscow, (Business News Report)|| JPMorgan warned of an economic collapse and recession facing Russia, which has not occurred in nearly a quarter of a century, due to Western sanctions.
JPMorgan said Russia was on its way to an economic collapse that rivals or even surpasses the scale of the 1998 recession that followed its debt default.
With the start of the Russo-Ukrainian war, economists began publishing their forecasts for the Russian economy, which ranks 11th among the largest economies in the world, despite warning that the forecasts are vague and subject to review.
Economists at JPMorgan Chase told clients in a report that they expect a 7% contraction of Russia’s gross domestic product through 2022, just as Goldman Sachs forecast.
Bloomberg Economics expects a decline of about 9%. Compared to the 5.3% contraction of the Russian economy in 1998 amid the debt crisis.
The Russian economy is reeling after foreign governments imposed sanctions on trade, finance and travel, froze its central bank reserves and cut off many of its banks from the SWIFT system for settling international payments.
Russia has sought to isolate its economy and markets by imposing capital controls, doubling interest rates, and other emergency measures, all of which are detrimental to growth.
“Sanctions undermine the two pillars promoting stability — the ‘fortress’ foreign-currency reserves of the central bank and Russia’s current account surplus,” JPMorgan’s economists, led by Bruce Kasman, said in their report. “The sanctions will hit their mark on the Russian economy, which now looks headed for a deep recession.”
However, investors said the human and geopolitical ramifications of the Russian invasion are greater than what we saw in 1998, but the ruble’s short-term decline has proven smaller, and Russia thus far has a greater ability to avoid defaulting on its debt, especially if other countries continue to resist Impose sanctions on its energy exports.
“It is the long-term that is more troubling,” said Tim Graf, head of EMEA macro strategy at State Street Global Markets. “The longer that sanctions are upheld, and especially if they are expanded to include gas and oil exports, the more likely Russia is to become an untouchable capital market for years to come.”
Oil and gas revenues provide hard currency support to Russia, because energy sales and transmission have escaped sanctions, and the United States and other governments fear that these restrictions will further damage their economies.
Russia was running a monthly current account surplus of about $20 billion at the beginning of the year. Bloomberg Economics believes that the ban on oil and gas exports will mean that the economy may shrink by about 14% during 2022.