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Street scene in Moscow: passers-by in front of the Russian Parliament building
Photo: ALEXANDER NEMENOV / AFP
According to the forecast by the rating agency Scope, the Russian economy will not return to the level it had before the invasion of Ukraine until the end of the decade.
The Kremlin, with the help of the central bank, used the unexpectedly high export earnings to cushion the direct consequences of the war and Western sanctions on the domestic economy, according to the study published by Reuters on Friday.
"But the longer-term prospects have deteriorated," writes Scope analyst Levon Kameryan.
It will therefore probably take the Russian economy until around 2030 to return to pre-war levels.
By the end of next year, gross domestic product will be around eight percent below the 2021 level due to western sanctions.
After that, the growth potential will drop from the 1.5 to 2.0 percent achieved before the war to 1.0 to 1.5 per year.
"It is far below that of most Central and Eastern European countries, where the average standard of living is significantly higher," according to the European credit rating agencies.
The war in Ukraine and Western sanctions are exacerbating Russia's longstanding economic deficits.
The outflow of capital, for example, will accelerate.
In the first quarter of 2022 alone, around $64 billion in private capital flowed out – four times as much as a year earlier.
“We expect the private sector to withdraw more capital from Russia this year than the $152 billion net in 2014 when Russia annexed Crimea,” the experts said.
Strong dependency
At the same time, productivity growth is being hampered by limited access to Western technology.
"Russia is highly dependent on imported components for machinery and electronics, computers, automobiles and pharmaceuticals," according to the study.
The proportion of foreign value added is more than 50 percent, with about half coming from the EU, the US, the UK, Canada and Japan.
"Such a high proportion of foreign-made goods cannot simply be replaced by Chinese imports or local alternatives," it said.
At the same time, negative demographic trends accelerated, "particularly the decline in the working-age population."
Many young, well-educated Russians left the country after the February 24 invasion of Ukraine.
"Estimates are based on several hundred thousand," says Scope.
Russia must also expect to get less from oil and gas, since it diverts its energy exports to India and China, but has to grant significant discounts there.
This gloomy prognosis is certainly shared by representatives of the Russian business elite.
The head of the state-owned Sberbank, German Gref, said at an economic conference in July that the country was doing better than expected.
However, it will probably take "ten years" to return to the economic level of 2021.
Gref was Economics Minister for many years.
beb/Reuters