WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

In Q4 2022, economic contraction is likely to have intensified following the announcement of military mobilisation and new export restrictions. Still, for the year as a whole, the recession will probably not have exceeded 2.5%, as the effects of Western sanctions were mitigated by successful financial stabilisation measures, a reorientation of trade towards Asia, and high energy prices and exports. However, more recently energy exports have been hit by new EU restrictions (imposed on 5 December): an oil import embargo and a price cap on oil shipped to third countries – arguably the most painful Western sanctions imposed on Russia so far. Although, in volume terms, oil exports have recovered swiftly, the resulting price decline has been spectacular: in the four weeks up to mid-January, the average price of Russian Urals plunged to USD 47 per barrel, with the discount to Brent reaching a record 43%. Moreover, since mid-2022 Russia has been reining in its gas pipeline exports to Europe, ostensibly for political reasons. With yet another EU embargo (on oil products) coming into force on 5 February, falling energy exports will be decisive in pushing the economy into yet another recession. They will also hit government revenue, some 40% of which comes from the energy sector, though the budget deficit will probably stay in low single digits over the forecast horizon. The economy is likely to bottom out by 2024; that will be followed by years of near stagnation, as access to new technology is severely hampered and as some of the most highly qualified workers emigrate (if they have not already done so).