Russia’s war on Ukraine is hurting the Russian economy. In light of instability and uncertainty in Russia, increased international economic and trade sanctions, as well as Russia’s own countersanctions, we expect Russian GDP to contract by about 10 % this year and remain in the next few years at levels seen a decade ago. The ruble’s exchange rate has fallen sharply, and Russia’s imports are expected to halve to levels reminiscent of the mid-2000s. The volume of Russian exports will decline, particularly as the EU reduces its energy imports from Russia. High inflation will depress household consumption, and fixed investment will suffer. The risks to this forecast are exceptionally large and concern e.g. the war, sanctions, inflation and fixed investment. Government budget spending could grow strongly.
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