Four weeks of war mark Russia’s economy

The Russian ruble coin is seen in broken glass and shown 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 cut the country out of the global financial fabric and sank its economy.

A month later, the Russian currency has lost much of its value and its bonds and stocks have been pushed off the indices. Your people are experiencing economic pain that is likely to last for many years.

Below are five charts showing how Russia’s economy and global standing have changed in the past month:

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ECONOMIC PAIN

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 rise above 15th, 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 surveyed by the central bank forecast an 8% contraction this year and inflation to hit 20%. Read more

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

“Taken together, our projections mean that current developments will wipe out approximately fifteen years’ worth of economic gains,” the IIF said in a note.

IIF on GDP of Russia

INFLATION TURNS TO DUST

Since taking office in 2013, Central Bank Governor Elvira Nabiullina’s biggest triumph was reducing inflation from 17% in 2015 to just over 2% in early 2018. As price pressures mounted in the months after the pandemic, he defied industrialists by raising interest rates for eight months in a row.

Nabiullina also resisted calls in 2014-2015 for capital controls to stop capital outflows following the annexation of Crimea.

But those achievements have been shattered in less than a month.

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

While panic buying explains some of this, the ruble’s weakness may keep price pressures high.

With Russia’s reserves 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.

Russia inflation

INDEX REMOVAL

The sanctions are forcing index providers to kick Russia out of benchmarks used by investors to funnel billions of dollars to emerging markets.

JPMorgan (.JPMEGDR) and MSCI are among those that have announced they will remove Russia from their bond and equity indices, respectively. (.MSCIEF).

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

On March 31, almost all major index providers will mark Russia’s weight to zero.

Reuters charts Reuters charts

BREAKDOWN OF RATINGS

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

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

In the last four weeks, Russia has suffered the largest cuts ever made in the sovereign credit rating. It is now at the bottom of the rating scale, indicating an imminent risk of default.

Russia’s credit rating sees biggest cut ever seen globally

RUBLE PROBLEM

A month ago, the average annual exchange rate of the ruble stood at 74 per dollar. Trading across platforms showed the ample liquidity and tight bid/ask spreads expected for a major emerging market currency.

All that has changed. With the central bank deprived of a large part of its foreign exchange reserves, the ruble plunged to record lows of more than 120 per dollar locally. In foreign trade it fell as low as 160 per dollar.

As liquidity dried up and bid/ask spreads widened, ruble pricing became random. The exchange rate has yet to find a balance inside and outside the country.

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

Our standards: The Thomson Reuters Trust Principles.

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