Russia’s economy is likely to face a longer and deeper recession as U.S. and European sanctions on Russia have crippled industries that have powered the country’s economy for years, an internal report prepared for Russian government officials said.
Russian government officials and experts have spent months trying to assess the impact of Russia’s economic isolation since the invasion of Ukraine. A report from a closed-door meeting of top officials on Aug. 30 obtained by Bloomberg showed that the economic picture was far more bleak than officials were telling the public.
Two of the three scenarios depicted in the report show a sharper contraction next year and the economy won’t return to prewar levels until late 2030 or later. The “endogenous” scenario predicts that the economy will bottom out next year, an 8.3% decline from 2021, and the “stress” scenario predicts that the economy will bottom out in 2024, with a maximum contraction of 11.9% from 2021.
All scenarios show increasing pressure from Western sanctions, and more countries are likely to join. The report noted that a sharp drop in European demand for Russian oil and gas could also affect the Kremlin’s ability to supply the domestic market.
Russia could lose up to 400 billion roubles ($6.6 billion) in tax revenue for the year if it completely cuts off gas supplies to Europe’s main export market, the report showed. Even in the medium term, Russia will not be able to fully make up for these lost sales with new export markets.
Russian officials have said in public that the sanctions have not been as severe as feared by the public, with the economy likely to shrink by less than 3 percent this year and even less next year.
Bloomberg Russia economist Alexander Isakov believes that Russia’s potential economic growth rate will drop to 0.5%-1.0% in the next decade as access to Western technology diminishes, foreign investment flows and future demographic headwinds. After that, potential economic growth will fall further, to just above zero by 2050.
Isakov added that Russia would also become increasingly vulnerable to falling global commodity prices as foreign currency reserves no longer provide a buffer.
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