STORM CLOUDS WILL DARKEN OVER RUSSIA
This is why it is not surprising that the 2022 GDP forecasts were immediately downgraded. Before the war, Russian GDP was supposed to grow in 2022 by 3 per cent as it recovered from the pandemic-induced recession.
Today, the Central Bank’s forecast is an 8 per cent decline. The European Bank for Reconstruction and Development expects a 10 per cent decline. The Washington-based Institute for International Finance projects a 15 per cent drop.
A 10 per cent decline (and this forecast is supported by many investment banks) would make it Russia’s worst recession since the early 1990s.
However, the worst is yet to come. Even though the Russian economy could possibly adjust to a new equilibrium in a year or two, it will fail to recover any time soon to pre-war levels; Russia will continue falling behind developed economies.
First, sanctions will keep it isolated from the global capital market and from advanced technology.
Second, it has shifted to a highly repressive regime that will destroy opportunities for domestic entrepreneurs.
Third, in the first few weeks of the war, it had already lost hundreds of thousands of skilled workers, who understood that staying in Russia is neither safe nor conducive to their careers.
These are educated professionals, IT specialists, researchers, engineers and doctors. Russia’s loss of its best human capital will continue further, undermining its growth prospects.