BI: Wall Street analysts underestimated the resilience of the Russian economy to sanctions

The Russian economy has shown greater resilience to sanctions than previously expected by Western analysts, reported Business Insider edition.

In March, JPMorgan said that in the second quarter of 2022, Russia’s GDP would contract by 35% compared to the first quarter, Goldman Sachs predicted that this would be the most serious contraction since the collapse of the Soviet Union. At the same time, Russia’s GDP contracted in the second quarter by 4% year on year, which is lower than the losses recorded in the second quarter of 2020 – then, due to the pandemic, the decline was 7.4%.

JPMorgan noted that the Russian economy has weathered the sanctions and now the GDP profile is indicative of a recession, probably a long one, but not a sharp one. As the International Monetary Fund (IMF) noted in July, exports of Russian goods, including oil, have supported the economy. “Domestic demand is showing some resilience, thanks to the containment of the impact of sanctions on the domestic financial sector and less than expected weakening of the labor market,” the IMF said in a statement.

Wall Street analysts assumed that the Russian economy would be significantly affected by the embargo on energy resources, which bring the country 45% of federal budget revenues. In May, the European Union banned 75% of Russian oil purchases, and, as Western countries assumed, Russia would not be able to quickly find new partners due to the shutdown of the SWIFT banking system. But according to Bloomberg data for July, Russia still exports 7.4 million barrels of oil per day. Oil purchases by India played a big role: compared to February 2022, the country now buys 900% more energy resources from Russia – about 1 million barrels per day. According to Bloomberg, Europe was able to reduce consumption by only 30% – from 4 million barrels per day in February to 2.8 million barrels.

The Russian Composite Purchasing Managers Index fell from 50.8 in February to 37.7 in March. but already in April the index began to grow, reaching 52.2. This latter signifies that Russia’s economic health is booming, a far cry from Wall Street’s doom predictions.