The Russian real GDP contracted by 3% in 2022, largely attributed to the sanctions imposed by Western nations in response to the invasion of Ukraine. Unfortunately, the impact of these sanctions is expected to continue, leading to a further contraction of 2% in real GDP for 2023 due to reduced demand from other economies, global economic slowdown, and the strain placed on public finances because of the ongoing war, observes GlobalData, a leading data and analytics company.

GlobalData’s latest report, “Macroeconomic Outlook Report: Russia,” reveals that more than 14,000 new sanctions were imposed on Russia that had battered the economy in 2022. The EU’s prohibition on the seaborne export of Russian oil went into force from 5 December 2022, and the ban on petroleum products was effective from 5 February 2023, and as a retaliation, Russia is expected to reduce its oil production by 500,000 barrels per day in March 2023.

On the other side, the slowing but elevated inflation is set to weaken the domestic demand and keep the consumer confidence subdued. According to GlobalData, the real household consumption expenditure is forecast to contract by 1% in 2023.

Maheshwari Bandari, Economic Research Analyst at GlobalData, comments: “Despite the sanctions, the country was backed by the increased oil and gas imports from India and China. In 2022, India, China and Turkey all ramped up their purchases of Russian oil and together accounted for 70% of all the Russian crude flows by sea.

“The fundamentals of Russian crude flows are changing. Except for the approximately 160,000 barrels per day of shipments to Bulgaria that are permitted under the embargo, Russia’s seaborne oil exports to the rest of Europe vanished in December 2022. As a result, Russia has become more and more reliant on consumers in Asia, primarily China and India.”

According to the Rosstat federal statistics agency, inflation rate in Russia was 11% in February 2023, the lowest since February 2022 but much higher than the Bank of Russia’s target of 4%. GlobalData forecasts the inflation rate to ease to 5.7% in 2023 from 13.7% in 2022.

Russian public finance has been worse hit due to the weakening of oil exports, economic recession, and financing of war. To finance the widening deficit, the government of Russia accumulated on debt in the form of domestic bond issues. Russia also generated revenues from imposing windfall taxes on some of its biggest commodity producers – most notably gas giant Gazprom in 2022.

Russia is categorized as a manageable risk nation and ranked 61st out of 153 nations in GlobalData Country Risk Index (GCRI Q4 2022). The country’s risk score remained higher than the East European average in the parameter of political and legal environment.

To overcome recession and ensure sustainable growth from early 2024 onwards, Russia unveiled a plan in August 2022 for the development of the economy until 2030. Some of the main priorities include the development of transport and logistics infrastructure, support for import substitution projects in various industries, ensuring technological independence, digitalization, and creation of a material basis in the form of equipment and software. Against this backdrop, GlobalData forecasts the Russian economy to register a growth rate of 1.9% in 2024.

Bandari concludes: “To sum up, the outlook for the Russian economy in 2023 looks dismal as the impact of sanctions starts materializing in full. However, the rate of contraction in real GDP is expected to slow in 2023 as the country is redirecting its trade away from western nations. Russia also expressed intentions to end the war in Ukraine, resolve issues through diplomacy and focus on the development of the country, which creates an optimistic outlook for 2024.”