Inflation is expected to exceed 20% in Russia this year and the Russian economy will suffer from a decline in energy exports, which are currently being largely offset by rising energy prices, according to the International Monetary Fund (IMF) in its Europe report published on Friday.
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“In Russia, sanctions and unprecedented uncertainty are expected to weigh heavily on investment and exports, and dampen imports and private consumption,” the report’s authors summarize.
The IMF points out that the energy sector, the “backbone” of the Russian economy, is exempt from the sanctions. But “there are signs that Russian energy exports are being shunned in the market.”
“Most importantly, Germany and many EU countries have effectively started weaning their economies off Russian energy sources,” the report’s authors continue.
The IMF has calculated that around 60-70% of Russia’s current demand for oil and natural gas could disappear over the next few years, “which will force Russia to diversify its exports to other regions”.
This week, the IMF, holding its spring meeting, said it expects Russia’s gross domestic product to fall by 8.5%, mainly due to a fall in export volume coupled with a fall in domestic demand.
For now, “energy exports are expected to hit $350 billion in 2022, up 40% year-on-year on higher prices,” according to data published in the report on Friday.
“However, starting next year, a decrease in the volume and price of Russia’s energy exports should gradually reduce Russia’s current account surplus,” the authors explain.
They estimate that energy exports could fall to $250 billion in the medium term as the European Union cuts energy imports from Russia.
Inflation had risen sharply in March due to the sharp depreciation of the ruble and shortages of certain commodities. “However, recent data point to signs of moderation due to the appreciation of the ruble and restrictions on food exports,” notes the IMF.
Inflation is still likely to be above 20% in 2022.
The report’s authors note that the measures taken by the government have been effective in mitigating the impact of sanctions imposed by Western countries in retaliation for the Russian invasion of Ukraine.
“Deposits and the exchange rate have almost completely recovered after the actions of the Bank of Russia to stabilize confidence in the financial system,” they note in particular.