3.4.22
Western sanctions are hitting Russia hard--harder than some experts expected. Much was made before the war of Russia's $643 billion in currency reserves. The thinking was that stash would help insulate the country from sanctions. But about half that money is under the control of commercial and central banks in the U.S. and its allies, The New York Times reports. So Russia will have difficulty getting at that stash. J.P. Morgan offers a bleak forecast of the country's economy, predicting "a collapse in Russian GDP." A report from the bank's economists, led by Bruce Kasman, said, "The sanctions will hit their mark on the Russian economy, which now looks headed for a deep recession." They forecast an 11% plunge in GDP from peak to trough, similar to the economy's plight in the 1998 debt crisis. "Sanctions undermine the two pillars promoting stability—the 'fortress' foreign exchange reserves of the Central Bank of Russia and Russia's current account surplus," the economists said. The current account measures a country's trade in goods and services and capital transfers.
"Russia's large current account surplus could have accommodated large capital outflows," the economists said. "But with accompanying Russian central bank and SWIFT sanctions, on top of the existing restrictions, Russia's export earnings will be disrupted, and capital outflows will likely be immediate." SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is the messaging system that facilitates global payments. Meanwhile, "Downward pressure on the ruble and capital flight are pushing the Russian central bank to raise rates dramatically and impose capital controls," the economists said. "Imports and GDP will collapse."
