BOFIT Forecast for Russia 2023–2024

Abstract

Russia’s unprovoked invasion of Ukraine and the economic sanctions imposed on Russia drove the Russian economy to the verge of crisis in March 2022. The strong economic growth of January and February in 2022 quickly evaporated, and production in several sectors declined due either to lack of demand or unavailability of key components and inputs. The Russian government responded by raising public spending, particularly on public investment. Economic policy was overhauled to accommodate wartime conditions.

Russian GDP contracted by 2.1 % last year. For the current year, we expect an economic decline of similar magnitude. Uncertainty and sanctions should dampen domestic demand, and exports should diminish. Russia’s economic stability relies on public-sector spending and war has placed the country on a risky path towards an autarkic economy with a heavy state footprint. This structural transformation is likely to reduce productivity and Russia’s long-term economic growth potential.