KSE Institute has released the February 2023 edition of its Russia Chartbook, detailing the effects of sanctions and the ongoing war on the country’s economy. The experts predict this year to become a turning point for the Russian economy. The report forecasts a sharp decline in oil and gas earnings as the external environment turns less supportive. Furthemore, Russia’s economy is expected to contract by 6.1% in 2023 and will be 15% smaller in 2024 compared to a no-war/no-sanctions scenario.

With the help of Ukrain’s allies, significant sanctions have been gradually phased in during 2022, including restrictions on Russian oil and natural gas exports. With Europe successfully reducing its reliance on Russian gas, energy prices returning to pre-invasion levels, and lower exports and production of hydrocarbons, KSE Institute forecasts a sharp decline in oil and gas earnings in 2023. 

The federal government struggles to finance the Russian invasion of Ukraine. Higher expenditures and declining revenues should lead to a deficit of 6.5% in 2023 and 6.1% in 2024. With sanctions on Russia’s Central Bank limiting access to reserves and a less supportive external environment expected to impact the ruble’s stability, the country will struggle to simultaneously address monetary and financial stability.

Low productivity growth will continue to challenge Russia’s economy, with the war and sanctions exacerbating the situation. The country is now cut off from critical financial markets, many foreign companies have departed, and capital spending is crowded out by war-related expenditures. KSE Institute also emphasizes that the emigration of high-skilled workers will also weigh on potential growth going forward.

KSE Institute recommends that allies of Ukraine impose additional sanctions against the Russian Federation to help shorten the war and exacerbate the Kremlin’s vulnerabilities.

You can download the full version of the KSE Institute Russia Chartbook: Turning Point Approaching. February 2023