Russian economy is ‘going to suffer a lot’ says Josep Borrell

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In the revealed document, the ministry predicts a painful 12pc tumble in Russia’s GCDP for 2022. This is the most significant fall since Boris Yeltsin came to the helm in 1994 for the post-Soviet transition, and will see ten years of growth vanish.

Since Russia invaded Ukraine in February, the Kremlin has been hammered by Western sanctions aimed at crippling Russia’s ability to wage war.

Russia only just dodged defaulting on a host of foreign debts earlier this month, which would have been the first time it failed to meet the deadline to pay since the 1917 revolution.

Russia turned to its scarce dollar reserves to pay the £526million owed to foreign investors, after a desperate attempt to pay its bills using frozen assets used to finance its war effort.

But these were blocked by Western sanctions, so the Kremlin looked to pay in rubles, which was rejected by investors.

The Russian government has been tight-lipped on its economic predictions, but the finance ministry’s report, seen by Bloomberg, is yet more bad news for Vladimir Putin.

The outlook shows a more dire picture than the predictions by both the central bank and the International Monetary Fund, the latter putting the projected decline at 8.5pc.

The Bank of Russia said at the end of last month that it expected a contraction of between 8 and 10 percent this year, and a Bloomberg–conducted survey came up with a figure of 10.3 percent.

The Russian economy shrank 7.8pc in 2009, following the global financial crisis, and dropped by 3pc as the coronavirus pandemic wreaked havoc.

Natalia Lavrova, chief economist at the BCS FInancial Group in Moscow, told Bloomberg that the “main negatives” were a combination of the “oil embargo, the EU giving up Russian gas, along with more departures among foreign companies”.

She added: “All that will probably expand gradually, with a lot of negative carrying over in to 2023.”

The UK and the US have already committed to ridding themselves of Russian oil, with President Biden issuing a ban on all Russian energy imports in early March.

In a statement from the White House, the US Government said: “By isolating Russia’s Central Bank and cutting off the largest Russian banks from the international financial system, we have disarmed his war chest of foreign reserves and left Putin to soften the blow of our sanctions.

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“US and allied export controls are impacting industrial production in Russia, Russian commercial aviation, and other key sectors of the Russian economy.”

On the same day, the UK announced it would phase out all Russian oil imports by the end of the year.

The Department for International Trade also announced on Monday that the UK was slapping another wave of sanctions on Russia and Belarus.

Affecting £1.7billion worth of trade, new import tariffs will be added to goods such as palladium and platinum, as well as export tariffs on the likes of chemicals and plastics.

But as Putin addressed crowds on Monday at Moscow’s Victory Day parade, the EU struggled to reach a consensus on an oil embargo against Russia.

EU member Hungary remains staunchly opposed to the move, as bloc diplomats failed to reach a decision on its sixth package of sanctions.

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