Four weeks of war mark the Russian economy

The Russian ruble coin is seen on broken glass and displayed on the Russian flag in this illustration taken February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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LONDON, March 24 (Reuters) – Russia’s invasion of Ukraine on February 24 triggered sweeping sanctions that have torn the country from the global financial fabric and shattered its economy.

A month later, the Russian currency lost much of its value and its bonds and stocks were thrown off the indexes. Its residents are experiencing economic difficulties that will likely last for years.

Below are five charts showing how the past month has changed the Russian economy and its global standing:

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In 2020, Russia was the 11th largest economy in the world, according to the World Bank. But by the end of this year, it may not rank above No. 15, based on the ruble’s exchange rate at the end of February, according to Jim O’Neill, the former Goldman Sachs economist. who coined the acronym BRIC to describe the big four emerging economies Brazil, Russia, India and China.

Recession seems inevitable. Economists polled by the central bank predicted an 8% contraction this year and that inflation would hit 20%. Read more

The forecasts of economists outside Russia are even gloomier. The Institute of International Finance forecasts a contraction of 15% in 2022, followed by a contraction of 3% in 2023.

“Overall, our projections mean that current developments are expected to wipe out economic gains of around fifteen years,” the IIR said in a note.

IIF on Russia’s GDP


Since taking office in 2013, central bank governor Elvira Nabiullina’s greatest triumph has been to reduce inflation from 17% in 2015 to just over 2% in early 2018. prices were rising in the post-pandemic months, she defied industrialists by raising interest rates eight months in a row.

Nabiullina also resisted calls in 2014-15 for capital controls to stem outflows following the annexation of Crimea.

But those accomplishments were torn to shreds in less than a month.

Annual price growth accelerated to 14.5% and is expected to exceed 20%, five times the target. Household inflation expectations for the coming year are above 18%, an 11-year high.

Although panic buying partly explains this, ruble weakness may keep price pressures elevated.

With Russia’s reserves the most frozen abroad, Nabiullina was forced to more than double interest rates on February 28 and introduce capital controls. The central bank now expects inflation to return to target only in 2024.

Inflation in Russia


The sanctions are forcing index providers to eject Russia from benchmarks used by investors to funnel billions of dollars into emerging markets.

JPMorgan (.JPMEGDR) and MSCI are among those who have announced that they are removing Russia from their bond and equity indexes (.MSCIEF), respectively.

Russia’s position in these indexes had already taken a hit after the first round of Western sanctions in 2014, then in 2018, following the poisoning of a former Russian spy in Britain and investigations into the alleged Russian interference in the 2016 US election.

On March 31, the weighting of Russia will be reduced to zero by almost all major index providers.

Reuters Charts Reuters Charts


When Russian troops stormed into Ukraine, their country had a coveted “investment grade” credit rating from the three major rating agencies S&P Global, Moody’s and Fitch.

This allowed it to borrow relatively cheaply, and a sovereign debt default seemed a distant prospect.

Over the past four weeks, Russia has suffered the biggest cuts ever to a sovereign credit rating. It is now at the bottom of the rating scale, signaling an imminent risk of default.

Russia’s credit rating suffers the biggest drop ever seen in the world


A month ago, the one-year average exchange rate of the ruble was 74 per dollar. Trading on various platforms showed the abundant liquidity and tight spreads between supply and demand expected for a major emerging market currency.

All that has changed. With the central bank deprived of much of its hard currency reserves, the ruble plunged to record lows of over 120 to the dollar locally. In offshore trading, it fell as low as 160 for a greenback.

As liquidity dried up and bid/ask spreads widened, ruble pricing became haphazard. The exchange rate has not yet found equilibrium on- and offshore.

Reuters Charts
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Reporting by Karin Strohecker, Sujata Rao, Rodrigo Campos and Marc Jones; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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