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Russia better than expected despite sanctions: IMF

#Russia #expected #sanctions #IMF

Despite damaging Western sanctions against Moscow after invading Ukraine, Russia’s economy appears to be weathering the storm better than expected as it benefits from high energy prices, the IMF said on Tuesday.

The sanctions were intended to decouple Russia from the global financial system and choke off funds available to Moscow to finance the war.

But the International Monetary Fund’s latest World Economic Outlook revised up Russia’s GDP estimate for this year by a remarkable 2.5 percentage points, even though its economy is expected to contract by 6 percent.

“It’s still a pretty sizeable recession for Russia in 2022,” IMF chief economist Pierre-Olivier Gourinchas said in an interview with AFP.

A key reason the downturn wasn’t as bad as expected was that “Russia’s central bank and Russian policymakers were able to stave off a banking panic or financial meltdown when sanctions were first imposed,” he said he.

Meanwhile, rising energy prices “bring huge revenues to the Russian economy.”

After starting the year below $80 a barrel, oil prices rose to almost $129 in March before falling back below $105 for Brent, the main European benchmark, on Tuesday as natural gas prices rebounded to their recent peak approach.

As major economies, including the United States and China, slow, the report said, “Russia’s economy is estimated to have contracted less than previously forecast in the second quarter, with crude oil and non-energy exports holding up better than expected.”

Despite the sanctions, Russia’s “domestic demand” is also showing some resilience due to government support.

But Gourinchas said “there is no recovery” for Russia. In fact, the IMF revises “Russian growth downwards in 2023,” 1.2 points lower than the April forecast for a 3.5 percent contraction.

The new sanctions already in place and announced by Europe mean that “the cumulative effect of sanctions is also increasing over time,” he said.

The report points out that Europe is facing the brunt of the consequences of the sanctions given its dependence on Russia for energy supplies. The situation could worsen dramatically if Moscow halts gas exports and the European Union imposes a ban on Russian oil shipments by sea starting next year.

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