Externally, the Kremlin is self-confident: The western sanctions could hardly harm the Russian economy. But behind closed doors, experts paint gloomy forecasts. This emerges from an internal document that Russian officials and experts for the Russian government have prepared over months of work. In it, they examine the actual effects of economic isolation. A copy of the document, which was presented at a closed-door meeting of top officials on August 30, is available to Bloomberg. Insiders have confirmed the authenticity of the document.
Accordingly, experts assume that Russia will experience a longer and deeper recession, the more the West extends its sanctions. Two of the three scenarios in the report show that the economic downturn will accelerate in the coming year. In both cases, the experts do not expect a return to the pre-war level until the end of the decade or even later. The “inertia” scenario projects an economic bottom in the coming year at 8.3 percent below 2021 levels, while the “stress scenario” projects an economic contraction of 11.9 percent below last year’s level. Meanwhile, each scenario takes into account that the pressure from sanctions will increase and more countries will participate.
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Sectors that are particularly geared towards exports will be affected over the next two years, resulting in “reduced production volumes”. This applies specifically to oil, gas, metals and chemicals. While the experts point to a subsequent recovery, “these sectors would no longer be the driving forces of the economy”.
If gas supplies to Europe, Russia’s main export market, were to be cut off altogether, this could cost the Russian state the equivalent of 6.6 billion euros in tax revenues. The report estimates that these shortfalls will not be able to compensate for new export markets in the medium term.
In the event that the global economy falls into recession, Russian export business could collapse even further. Russia would then be degraded to a “needs supplier” on the global markets, whose products would no longer be in demand. This could lead to a collapse in the ruble and a spike in inflation.
On the import side, meanwhile, the report sees “the suspension of production due to shortages of imported raw materials and components” as the biggest short-term risk. In the long term, the inability to repair imported equipment could permanently limit economic growth. “There are simply no alternative suppliers for some critical imports,” write the experts.
This would set Russia back, especially in the technological area. With limited access to Western technologies, Putin’s country could fall a generation or two behind current technological standards as sanctions force it to resort to less advanced alternatives from China and Southeast Asia.
This also affects aviation. Foreign-manufactured planes carry 95 percent of Russian passengers. However, the fleet of Boeing and Airbus aircraft could soon shrink as spare parts are no longer supplied due to the sanctions.
In addition to this sector, the manufacture of pharmaceuticals would also suffer from falling imports, since domestic production depends on imported raw materials for 80 percent. In addition, the mechanical engineering sector faces major challenges because Russia can only manufacture 30 percent of the machines itself and the local industry does not have enough capacity to meet the increasing demand.
Apart from the loss of import and export business, the report also mentions the brain drain. According to forecasts, around 200,000 IT specialists alone will have left the country by 2025.
