IMF chief: Ukraine war will have ‘devastating' consequences for Russia's economy

The IMF has been criticised for forecasting that Russia will see stronger economic growth this year than either the United Kingdom or Germany, despite rising pressure from Western sanctions.

IMF chief: Ukraine war will have ‘devastating' consequences for Russia's economy

London CNN

The International Monetary Fund has been criticised for predicting that Russia would experience stronger economic growth than Germany or the United Kingdom this year, despite increasing pressure from Western sanctions.

Kristalina Georgieva (IMF's managing director) told CNN's PoppyHarlow that Russia's economic outlook after 2023 was 'quite depressing'.

Georgieva stated that Russia's economy would shrink by at least 7.7% if you look at our projections for the medium term.

The IMF forecasted that Russia's economy would grow by 0.3% and 2.1% in January. This was more optimistic than both the Organization for Economic Cooperation and Development and the World Bank's latest forecasts. These economists have projected contractions of 3.3% to 5.6% for 2023, according to respective groups.

Even Russia's central bank, which has extended emergency capital controls for six more months Monday, said that gross domestic product could contract by 1% this fiscal year.

Jeffrey Sonnenfeld, Yale's management professor, said Monday in Fortune magazine that the "IMF" had been asleep at the switch and was paraphrasing propaganda from Russian President Vladimir Putin.

"With respect to Russia it is naively echoing Putin’s invented GDP forecasts in effect canonizing these economic myths without any verification," said Sonnenfeld with two of his colleagues, Stephen Roach, and Steven Tian.

Sonnenfeld kept a list containing Western companies that have stopped operations in Russia after the invasion of Ukraine one-year ago. He has asked for companies to leave Russia.

CNN's Georgieva stated that Russia's economy would be affected by emigration and reduced access to technology. Also, sanctions against its huge energy industry would have a negative impact.

"This year, what we reflect upon is that Russia managed to direct some [its] oil sales outside the markets of Europe," she stated, referring specifically to Russia's success with rerouting crude oil shipments to China, India, and China. "That is not going be a lasting effect for the Russian economy."

"We don't think Russia can benefit from the damage they've done to Ukraine and themselves."

Moscow's finances are under pressure after Europe recently banned imports of Russian oil products and seaborne Russian crude oil. The Russian government reported Monday a deficit of 2.58 trillion rubles ($34 Billion) in January and February. This compares to a surplus in the same period of 2022 of 415 billion rubles ($5.5 Billion). According to the Russian government, oil and gas revenues have fallen 46% year-overyear.

The fight against inflation continues

Georgieva stated that the US and European economies are remarkably resilient. She cited the strength of their labor markets and Europe's quick action to reduce dependence on Russian energy.

Georgieva stated that all of this positively impacts our prospects for growth. "We don't expect a global recession this year."

However, this won't stop a global slowdown as central banks continue to fight for lower inflation levels than they have seen in the past few decades. According to the IMF, world economic output will grow 2.9% in 2023, compared with 3.4% in 2022.

Georgieva says it is crucial that policymakers do not reduce interest rates too soon to prevent prices from rising again.

Georgieva advised Federal Reserve Chair Jerome Powell to "Keep the course,"

Powell testified Tuesday before Congress that while the Fed has slowed rate increases last month, he suggested that the central bank might need to become more hawkish.

Powell stated that "the latest economic data have shown that interest rates are likely to rise more than anticipated." Powell said that the Fed would be willing to hike rates if necessary.