The Russian central bank forecasted that the country’s economy will shrink by between 4 percent and 6 percent this year and by between 1 percent and 4 percent in 2023, before returning to positive growth in 2024.
The Finance Ministry last month said the economy shrank by 4 percent in the second quarter, after growing 3.5 percent in the previous three months.
The contraction is a sign that unprecedented restrictions imposed by the EU, the U.S. and other countries supporting Ukraine are starting to bite, according to observers.
Sanctions targeting Russia’s energy exports led to a rise in energy prices, which partly cushioned their impact, along with emergency measures by Moscow aimed at maintaining a strong currency.
But bans on technology shipments ground manufacturing to a halt, and the downturn is likely to continue in 2023, as an EU ban on most of Russia’s oil exports kicks in at the end of the year, restricting export revenues which have been the lifeline of Russia’s economy.
The Kyiv School of Economics recently wrote that once its oil and gas revenues fall, “Russia will then face a difficult choice between high inflation and tighter policy. In either scenario, its capacity to support its economy and prosecute its imperial war of aggression in Ukraine will be significantly impaired,” it said.
Separately, Russia’s National Settlement Depository on Friday filed a lawsuit with the Court of Justice of the EU in Luxembourg seeking to lift sanctions imposed on it by the bloc, arguing that they are “unlawful and unjustified” and that “international investors have suffered as a result.” Russia has already entered a technical default by missing a bond payment deadline in June, citing force majeure and arguing its inability to pay was due to Western sanctions.