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Goldman, Barclays forecast double-digit contraction for Russia

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(Bloomberg) — Economists at Barclays Plc and Goldman Sachs Group Inc. lowered their forecasts for Russia and now see a double-digit contraction in output this year, the latest in a series of revisions incorporating the increased severity of sanctions. before the invasion of Ukraine.

Barclays published one of its most dovish outlooks yet, reversing its previous estimates for growth and projecting a 12.4% contraction in 2022 and a 3.5% drop the following year. Goldman lowered its forecast for this year and now sees a 10% decline, down from a 7% decline previously projected.

“Due to current geopolitical conditions, we assume the sanctions will be long-lasting,” Barclays economists, including Brahim Razgallah, said in a note.

“The economic slowdown will be gradual and will accelerate in mid-2022, as the repercussions of the sanctions are fully transferred to the economy,” the economists noted. “We expect the economic contraction to be driven by falling private consumption, investment and imports.”

Just over three weeks since President Vladimir Putin was certain to have the Russian military attack Ukraine, an economy that was poised to expand for the second year in a row is sinking into its biggest recession of this century.

Putin warned that the country faces rising unemployment and inflation as it adjusts to what he described as an “economic blitzkrieg” of international sanctions. The initial Bloomberg Economics project is based on full-year GDP in Russia around 9% in 2022.

Goldman economists, led by Clemens Grafe, said in a note that “Russia’s exports have been hit harder than we had initially assumed,” explaining about half of the bank’s downward revision to its outlook. . Goldman’s hypothesis is that Russia’s gas exports continue unabated, but its oil shipments will fall by about 20%.

It now expects exports to decline 20% sequentially in the second quarter and 10% for the year. Goldman is expected to have about 20% of the import volume in 2022.

At the same time, the products that Russia exports rely on few imported parts, according to Goldman. In the case of mining, only 7% of the intermediation costs of goods and services in the sector depend on imports, he said, citing the latest available data for 2019.

less integrated

“The impact of trade sanctions on Russia is likely to be as detrimental to the economy as it would be to other economies that are more integrated into global supply chains,” Goldman said.

The US bank foresees a “slow recovery”, with positive growth next year. GDP is expected to expand by 2.4% in 2023 and 3.4% in 2024, then the bank.

The picture is much less bleak for Russia’s finances. In the absence of further trade restrictions and with high commodity prices, Barclays believes that Russia will be able to finance its main spending needs.

In Goldman Opinion, Russia’s current account surplus is improving slightly despite sharp falls in imports and exports.

He now expects the current account balance, the broadest measure of trade in goods and services, to hit a record $205 billion in 2022, on the assumption that Russia will continue to pay its debt and allow dividend payments.

original note:

Goldman, Barclays cut Russia outlook for 2022, see double-digit drop

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