Russia is facing an economic recession of unprecedented proportions, comparable to the 1998 financial crisis, according to top analysts. The country’s savings will be wiped out and its currency devastated due to the sanctions imposed by Western nations and their allies in response to the invasion of Ukraine. JP Morgan forecasts a significant 11% shrinkage in Russia’s economy in the coming months. Economist Bruce Kasman predicts a crash similar to the one experienced during the 1998 debt crisis, stating that “the sanctions will hit their mark on the Russian economy, which now looks headed for a deep recession.”
The Russian currency, the rouble, has already depreciated by 40% in the past two weeks, leading to a surge in the cost of imported goods. The central bank has raised interest rates more than twice in an attempt to defend the currency. Previously, it took about 75 roubles to buy $1, but now it takes 124 roubles.
Experts Kay Neufeld and Pushpin Singh from the Centre for Economics and Business Research warn that the financial sanctions aim to starve the Russian financial system of foreign currency access. In extreme scenarios, these sanctions could potentially cause the complete collapse of the rouble and the Russian banking system. They also predict rampant inflation, which would significantly impact the savings of the Russian middle class and plunge the less well-off into poverty.
In a bid to prevent financial collapse, Russia’s central bank has extended the closure of the Moscow stock exchange for the fifth consecutive day, surpassing the four-day closure during the severe financial crisis of 1998. This closure marks the longest cessation of trading in any international stock market since Egypt’s stock exchange shut down for nearly two months in 2011 during the protests that led to the downfall of President Hosni Mubarak.
Furthermore, Western companies are deserting Russia, further isolating its economy. Microsoft, one of the largest companies taking action in response to the invasion of Ukraine, has halted all sales in Russia while maintaining existing relationships. Similarly, Google has suspended its ad business in the country, Facebook and Instagram have blocked RT in the UK, and other significant international companies are following suit.
Notably, Russia is also experiencing a mass exodus of its citizens, exacerbating the severe economic consequences of the crisis. To suppress dissent and control information, Russia’s parliament has passed a draconian law that carries a 15-year prison sentence for spreading “fake news” regarding Vladimir Putin’s invasion of Ukraine. This repressive measure has contributed to the departure of many young urban Russians.
In conclusion, Russia is on the brink of a devastating economic recession, driven by Western sanctions and the alarming decline of its currency. The consequences are dire, including the obliteration of savings, inflation, and potential financial system collapse. The closure of the stock exchange and the exodus of both businesses and citizens amplify the gravity of the situation.
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