Solus Alternative Wealth Management Strategist Dan Greenhaus examines the state of the money-making market.
Russia’s economy is on the brink of collapse this year after the US and its European allies slapped a series of crippling fines at the Kremlin for their unprovoked invasion of Ukraine.
Russian manufacturing activity slumped in March, shrinking the most since May 2020, as firms faced a sharp rise in prices and a sharp drop in new orders. Western sanctions have effectively isolated Russia from the international financial system and prevented access to new technologies.
Experts believe this is just the beginning of a major downturn for the Russian economy this year.
The Institute for International Finance (IIF), a Washington-based think tank, estimates that Russia’s gross domestic product, the most comprehensive measure of goods produced in a country, could collapse by 15% in 2022 and 3% in 2023. destroying decades of growth. A contraction of this magnitude would be about twice as severe as Russia’s recession during the global financial crisis in 2008.
RUSSIA INVADES UKRAINE: LIVE UPDATES
“Further escalation of the war could lead to further boycotts of Russian energy, which would drastically affect Russia’s ability to import goods and services and deepen the recession,” the IIF said in an analyst note last month.
At the same time, Goldman Sachs is forecasting the economy could contract by 10% this year — having previously forecast growth of around 2% — while Capital Economics is forecasting a 12% contraction. Barclays economists, including Brahim Razgallah, said in an analyst note that Russia’s economy could collapse by as much as 12.4% in 2022.
Russian President Vladimir Putin attends a meeting with young award-winning cultural figures via videoconference on Friday, March 25, 2022 in Moscow, Russia. (Mikhail Klimentyev, Sputnik, Kremlin Pool Photo via AP, file / AP Images)
“Due to the current geopolitical conditions, we anticipate prolonged sanctions,” they wrote.
Western allies slapped heavy fines on Russia after invading Ukraine on February 24, including cutting off a key part of Russia’s central bank by preventing it from selling dollars, euros and other foreign currencies in its reserve holdings of around $630 billion; block certain financial institutions from the Swift messaging system for international payments; and the sanctioning of hundreds of Russian lawmakers and elites who have close ties to President Vladimir Putin.
Additionally, after the invasion began, hundreds of Western companies — including Coca-Cola, McDonald’s and Goldman Sachs — attempted to sever ties with Moscow amid intense pressure from investors and consumers. The pace quickened as relentless fighting in Ukraine created a massive humanitarian crisis.
Putin has warned that Russia faces rising unemployment and inflation amid international sanctions, which he describes as an “economic blitzkrieg”.
Moscow is also on the brink of a historic default as it has attempted to service its dollar-denominated debt in rubles, according to Moody’s. It would be the first time since the Bolshevik revolution of 1917 that Russia defaulted on an external debt.
Pedestrians pass the entrance to a branch of Uniastrum Bank LLC, part of Bank of Cyprus Group, in Moscow, Russia, Tuesday March 19, 2013. A double tax treaty and low tax rates have made Cyprus the channel of choice for Russian film (Andrey Rudakov/Bloomberg via Getty Images/Getty Images)
Russia made payment due April 4 on two government bonds in rubles rather than dollars that it had agreed to pay under the terms of the bonds.
Russia “can therefore be considered a default by Moody’s definition if it is not cured by May 4, which is the end of the grace period,” Moody’s said Thursday. “The bond agreements do not provide for repayment in any currency other than dollars.”
GET FOX BUSINESS ON THE GO BY CLICK HERE
Finance Minister Anton Siluanov told Russian state media earlier this month that the Kremlin will take legal action if it is forced to pay its debt.
“We will sue because we have taken all necessary measures for investors to receive their payments,” Siluanov told pro-Kremlin newspaper Izvestia. “We will submit evidence of our payments to the court to confirm our efforts to pay in rubles, just as we did in foreign currency. It will not be an easy process.”
It is unclear who Russia will sue.