Russia heading for worst recession since end of cold war, says UK
Russia is heading for its deepest recession since the aftermath of the collapse of the Soviet Union, the UK government predicted on Friday, as Moscow’s central bank unexpectedly cut its key interest rate to support its shrinking economy.
The Foreign Office said Russia’s GDP is expected to contract by between 8.5% and 15% this year, as the series of sanctions imposed following the war in Ukraine hit activity.
That would be more severe than in 2009, after the financial crisis, when Russia’s economy shrank around 7.8%, and would be the worst decline since GDP fell for several years in the early 1990s.
Longer term, expert predictions suggest GDP growth will continue to be depressed as the country is cut off from Western technology, the UK added, as it announced sanctions on Vladimir Putin’s two adult daughters.
Western sanctions on Russia mean that about 60%, or £275bn, of its foreign exchange reserves are currently frozen, the UK added. That prevented Moscow making dollar debt repayments this week, putting it closer to defaulting on its debts.
Russian firms have already reported a marked contraction in business activity in March, with output and new orders tumbling and inflationary pressures soaring.
With a steep recession looming, the Bank of Russia has announced a surprise cut to borrowing costs. The Central Bank of the Russian Federation (CBR) will lower its key lending rate from 20% to 17% from Monday, six weeks after doubling interest rates in an emergency attempt to prop up the rouble.
The cut shows the bank is pivoting its focus to support the economy, as the recent recovery in the rouble following the introduction of capital controls eased inflation worries.
The CBR said inflationary pressures had softened, while financial
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