This is what awaits the Russian economy according to Wall Street

Russian economy according to Wall Street

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  • Russia’s economic downturn could be worse than the one suffered by that nation in 1998. At the time, Moscow defaulted on its debt obligations, causing its economy to plummet by 5.3%.
  • Wall Street analysts believe that the collapse will be between 7% and 9%. Despite this, they believe that there are factors that will make things easier for the Kremlin.
  • If sanctions on raw material exports were applied, the fall would be close to 14%, but the latter seems not to be the case.

The special military operation launched by Moscow on Ukrainian territory unleashed an unprecedented wave of economic sanctions by the West. The consequences for Russia’s economy are expected to be devastating. However, the true weight of the punitive actions against the Kremlin was objectively assessed this week.

Beyond the versions of American or Russian propaganda, analysts from the main Wall Street banks made their forecasts public. In this way, all these institutions agree that the sanctions will impact between 7% and 9% of the GDP of the Eurasian nation.

Some of the banks that analyzed the panorama of the Russian economy are JP Morgan and Goldman Sachs. At the same time, other weighty strategists such as those of Bloomberg and State Street Global Market also analyzed the scenario in which the numbers of that ancient nation will unfold.

How does Wall Street see the future of the Russian economy?

In 1998, still hit by the impact of the collapse of the USSR, Russia’s economy was shaken to its foundations. For 80 years, the Kremlin had been operating with the classic Marxist command economy. This form is similar to that of China, but with notable differences in relation to private property.

After the fall of the Soviet government, the new and inexperienced authorities of the country led the economy towards disaster. At the time, many compared the situation to that of a country that has suffered a resounding military defeat. The other factor that hit the Kremlin’s capacity was a dismemberment. Thus, more than 12 regions became independent republics, including Ukraine.

By 1998 (8 years since the fall of socialism), Russia was unable to meet its debt obligations, thus entering a deep recession. Meanwhile, the country’s economic collapse was recorded at 5.3%. In that sense, JP Morgan said this Friday that the current fall, caused by the sanctions, will be 7%.

Goldman Sachs claims that taking into account the unprecedented level of sanctions, Russia’s economy would fall by 7%. On the other hand, Bloomberg analysts expect a drop of close to 9%. In other words, the punitive measures against the Kremlin will cause a much greater collapse than the tragic default of 1998.

The fortresses of Moscow

An aspect of fundamental importance to assess is that the Kremlin will not stay in bed waiting for the time that its agony leads to death. On the contrary, the Russian leadership is now more experienced than in 1998 and has recaptured the malice of its Soviet predecessors. To this is added that many of the sanctions are more propaganda than reality.

For example, some countries are hesitant to impose sanctions on oil and gas for fear of “shooting themselves in the foot”. Much of the central bank’s reserves were frozen, but Russia had already been preparing for years, selling assets in the West and buying in China. The same can be said for the readiness to switch from SWIFT to China’s CIPS.

This context makes it clear that the Russian economy will fall very hard, but it will not fall on pavement, but on a thin mattress. The latter is supported by JP Morgan, whose analysts highlight a deep recession to come. At the same time, they underline that the ruble has fallen less than expected, which allows the nation to avoid defaulting on its debt.

This strength of Russia would increase if other nations refuse to apply sanctions on commodities. Many countries would be waiting for the matter with Ukraine to calm down to pounce on the extra gas that Moscow would stop selling to the European Union.

Medium and long term

At this point, it stands out that countries like China are already won over to support Moscow. However, if in the short term Russia can do well, in the medium term it seems to have a darker picture. In other words, if the sanctions are expanded to the spheres of raw materials, the fall of the Russian economy could be 14%.

Such a fact would make Russia an untouchable market for many years. This translates into unpredictable suffering for that nation as a whole. It is not known if this will happen, since we are talking about the eleventh largest economy in the world and one of the main producers of gas, oil, wheat and strategic products.

Will developing nations like India or Brazil be able to resist entering a juicy market for cheap raw materials? Or, put another way, will they allow Russia’s endless resources to become the private property of China and pave the way for Beijing to become the most powerful economy on the planet?