Kremlin faces worst recession since financial crisis

RUSSIA will suffer the worst recession since the financial crisis as sanctions force an increasingly desperate Kremlin to embrace “unorthodox” economic policies, says credit agency Moody’s.

On the one-year anniversary of the invasion of Ukraine, analysts expect the Russian economy to decline by 3pc in 2023, following a 2.1pc contraction in 2022.

This would represent a deeper recession than 2020 and the worst downturn since 2009, when the economy shrank by 8pc.

Moody’s said the steeper drop in output reflected tighter international sanctions, including an embargo on seaborne crude oil exports that came into effect last December and a ban on refined oil products that came into effect this month.

It said the sanctions would hit around 14pc of Russian goods exports, while a $60-per-barrel price cap on Russian oil imposed by the G7, EU and Australia would force Russia to raid its huge $200bn (£166bn) war chest of foreign exchange reserves, leaving it more vulnerable to commodity price movements.

Moody’s said sanctions would also reduce tax revenue as the government continues to increase spending to fund the war. It added that the Kremlin’s budget position will become less flexible and more exposed to fluctuations in commodity prices and the ruble.

An isolated Russia meant the government “may increasingly resort to unorthodox policies in the longer term, including monetary financing which could have negative consequences for inflation and macro-financial stability,” Moody’s said.

The Russian economy shrank by 2.2pc in 2022, according to the country’s statistics agency.

Moody’s, which had predicted a decline of 7pc, said last year’s better-thanexpected performance was largely due to Vladimir Putin’s ability to redirect crude oil exports from the European Union to China, India and Turkey at deep discounts relative to market prices, which it said more than made up for the drop in supplies to the EU and the UK in 2022.