When President Vladimir Putin’s forces invaded Ukraine in late February, many Wall Street analysts rushed to predict Russia’s economic downfall. Six months later, they’ve been forced to revise those forecasts.
Those dire warnings looked set to become reality in the weeks after war broke out. Western allies brought in economic sanctions — such as oil import bans and cutting the Russian ruble out of international currency markets.
But Russia’s economy has shown a lot of resilience. These three charts show how.
Economic growth holds up
In March, top investment bank JPMorgan said Russia’s gross domestic product would fall 35% in the second quarter compared with the previous. Goldman Sachs predicted its economy would suffer its worst contraction since the Soviet Union imploded in the early 1990s.
But Russia’s GDP slipped only 4% year-on-year in the three months to June 30. In fact, its economic growth shrank at a faster rate after the coronavirus pandemic broke out, when GDP fell 7.4% in the second quarter of 2020.
Given that, JPMorgan has concluded Russia’s economy has held up under the weight of tough sanctions.
Available data “does not point to an abrupt plunge in activity — at least for now,” its strategists said in a note recently. “The GDP profile, therefore, looks increasingly likely to be consistent with a drawn-out, but not very sharp recession.”
Stronger-than-expected exports of Russian commodities, including crude oil, has helped support the economy. The country has also benefited from robust demand among its own consumers and a Kremlin-devised program to keep unemployment low, according to the International Monetary Fund.
“Domestic demand is showing some resilience thanks to containment of the effect of the sanctions on the domestic financial sector and a lower-than-anticipated weakening of the labor market,” the IMF said in July.
Oil exports boosted by Asia pivot
Wall Street analysts also predicted that Western oil import bans would badly hurt Russia, the world’s third-largest oil producer behind the US and Saudi Arabia.
Its economy is heavily reliant on its energy exports, with oil and gas revenues making up 45% of its federal budget last year, according to the International Energy Agency.
The US put an embargo on Russian energy imports in March, while the EU agreed a phased ban — which for now impacts 75% of Russian oil purchases — in May.
In March, Goldman Sachs said Moscow was unlikely to find other crude oil trading partners, given its expulsion from the SWIFT banking system prevented the Russian Central Bank from using its foreign reserves.
“Illustrating this point, there are no reports of increased Chinese purchases of Russian crude so far, with China similarly not scaling up imports of Iranian or Venezuelan crude in recent years,” its analysts said.
But Russia still exports 7.4 million barrels of its oil each day, according to Bloomberg data for July.
India’s purchases of Russian oil have played a big part. Its imports rose five months in a row before slipping slightly in June. It’s still taking in 1 million barrels of Russian oil a day — a 900% increase from February.
And Europe has yet failed to wean itself off of Russian crude. The EU still brings in 2.8 million barrels a day, according to Bloomberg data. That’s just a 30% drop from February’s 4 million barrels a day.
Factory and services activity revives
Wall Street saw nothing but pain ahead for Russia’s manufacturing and services sectors as Western economic sanctions hit.
In the wake of the Ukraine invasion, Russia’s composite Purchasing Managers Index — which tracks trends in the two sectors — tumbled. It slid from 50.8 in February to 37.7 in March, with a reading above 50 indicating growth and below 50, contraction.
Goldman Sachs strategists said the contraction was “broad-based, with sharp drops in the output, new orders, and especially the new exports orders components”. They noted Moscow should brace for further declines.
But several months later, Russia’s composite PMI has risen back into growth territory.
The index climbed to 44.4 in April, rose above 50 in June, and hit 52.2 last month. That last reading means Russia’s economic health is blooming -—a far cry from the predictions of doom made on Wall Street.