Russia will drag its economy back to 2007

The war of Russia and Ukraine will withdraw its economy until 2007

Russia will drag its economy back to 2007, experts warn Russia’s invasion of Ukraine will wipe out 15 years of economic achievements.

According to financial analysts, Vladimir Putin’s invasion of Ukraine will wipe off 15 years of Russian economic gain.

The Institute of International Finance projected. Reuters reports it.

The organization said the invasion would hurt Russia’s budget. In addition, it predicted the impact would shrink the economy to 2007 levels.

Russia will drag its economy back to 2007

Companies leaving Russia and laying off the staff were the biggest.

Sanctions reduce exports.

Russian talent leaves.

The organization forecast Russia’s GDP will shrink by 15% in 2022 and 3% in 2023.

It added Russia’s situation might worsen depending on how soon Europe stops using Russian oil and gas.

Russia will drag its economy back to 2007

As prices rise in Russia, the economy’s future looks “especially bleak.”

The EU agreed to eliminate 90% of Russian oil imports by the end of the year, but natural-gas imports will take longer.

After being shut off from the financial system, Russia has trouble paying its international creditors. Domestic capital controls have bolstered its currency, but diminishing energy demand has forced it to discount fuel, especially crude oil.

The IIF study admitted that Russian imports surged due to higher energy prices after the invasion.

Experts say Russia will only get a short-term gain from this phenomenon, and its isolation from Western markets would undermine its economy.

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Russia will drag its economy back to 2007

Growth slowdown raises stagflation risk.

The Russian invasion of Ukraine has exacerbated the damage from the COVID-19 pandemic, according to the World Bank’s latest Global Economic Prospects report. This increases the risk of stagflation, which could harm middle- and low-income economies.

Global growth is forecast to fall from 5.7% in 2021 to 2.9% in 2022, compared to 4.1% in January. The war in Ukraine will impair near-term activity, investment, and trade, pent-up demand will diminish, and fiscal and monetary policy support will be eliminated. Moreover, due to the pandemic and conflict, emerging nations’ per capita income will be 5% below pre-pandemic levels this year.

Growth

“The Ukraine crisis, China lockdowns, supply-chain disruptions, and stagflation danger are hitting growth. David Malpass, World Bank president, predicted many nations would face a recession. “Markets look forward, thus boosting production and preventing trade barriers. However, capital misallocation and inequality require fiscal, monetary, climate, and debt policy changes.

The June Global Economic Prospects study presents the first systematic comparison of current global economic conditions with 1970s stagflation, focusing on how it may affect the emerging market and developing nations. Recovery from 1970s stagflation necessitated substantial interest rate hikes in the advanced economies, triggering a spate of financial crises in emerging markets and developing nations.

Russia will drag its economy back to 2007

Ayhan Kose, director of the World Bank’s Prospects Group, said developing nations must combine fiscal sustainability and mitigate the consequences of overlapping crises on their poorest populations. “Communicating monetary policy decisions, using credible monetary policy frameworks, and safeguarding central bank independence can effectively anchor inflation expectations and decrease policy tightening needed to attain inflation and activity goals.”

The current juncture resembles the 1970s in three key aspects: persistent supply-side disturbances fueling inflation, preceded by a protracted period of highly accommodative monetary policy in major advanced economies, weakening growth prospects, and emerging market and developing economy vulnerabilities to monetary policy tightening needed to rein in inflation.

In contrast to the 1970s, the dollar is strong, commodity price rises are lower, and major financial institutions have robust balance sheets. In addition, unlike in the 1970s, central banks in industrialized nations and many emerging economies today have clear price stability mandates and a track record of attaining inflation objectives.

Next year, global inflation will likely decrease but stay over expectations in many nations. But, according to the paper, if inflation continues high, a repetition of the former stagflation event could lead to a worldwide slowdown and financial crises in emerging and developing countries.

Russia will drag its economy back to 2007-energy –

The analysis also reveals how war’s consequences on energy markets cloud global development prospects. The Ukraine war has boosted the price of several energy-related goods. Higher energy prices will reduce real incomes, boost production costs, tighten financial conditions, and limit macroeconomic policy in energy-importing countries.

Advanced economy growth is expected to slow from 5.1% in 2021 to 2.6% in 2022, 1.2 percentage points below January predictions. In addition, the continued removal of fiscal and monetary policy assistance during the epidemic is predicted to slow growth to 2.2% in 2023.

Emerging and developing economies are expected to grow by 6.6% in 2021 and 3.4% in 2022, considerably below the 2011-2019 average of 4.8%. Moreover, negative conflict spillovers will more than balance any near-term benefit from increasing oil prices. As a result, nearly 70% of EMDEs, including most commodity importers and 45% of low-income nations, have lowered 2022 growth forecasts.

Global measures will need to minimize war damage

The research calls for global and national action to prevent the worst economic impacts of the Ukraine war. Global measures will need to minimize war damage, soften the pain of rising oil and food costs, hasten debt relief, and extend immunizations in low-income countries. It will also include national supply responses and healthy global commodities markets.

Price restrictions, subsidies, and export prohibitions might aggravate the recent rise in commodity prices. With greater inflation, poorer growth, tighter financial conditions, and less fiscal policy flexibility, governments must refocus expenditure on vulnerable people.

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