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Defeating Putin: the development, implementation and impact of economic sanctions on Russia
- Our most recent Report on Economic Crime, published in February 2022, included recommendations on the introduction of an overseas entities register[1] and a series of recommendations to tackle money-laundering. A Government response to that Report is due in April 2022.
Sanctions: the impact on Russia
- We invited witnesses to set out their assessment of the economic impact upon Russia
of sanctions already imposed. Prior to our hearing, on 2 March 2022, the National Institute
for Economic and Social Research (NIESR) had suggested that sanctions would lead to a
2.6% fall in Russian GDP next year in comparison to its previous forecast.[2] However, in
evidence to us on 14 March 2022, Professor Jagjit Chadha, Director at NIESR, spoke of “a
very large hit to activity in the Russian economy” and noted that, if further sanctions were
to be imposed to shut off Russian energy exports:
[ ... ] you could imagine those numbers at least doubling or even tripling from where we posited them last week, so to 5% or more in terms of the contraction in the Russian economy. Once we are into those sorts of numbers, we need to go from a quantitative statement to a qualitative statement, which is to say that that will be a very large hit on the Russian economy, which will be terribly problematic and will have a distributional consequence: it will be particularly damaging for those on fixed incomes or low wages.[3]
- Neil Shearing, Group Chief Economist at Capital Economics, held a similar view, telling us that “you will get a fall in GDP of more than 5%, I’m sure, and probably closer to 10%. There is going to be an acute period of pain over the next 18 months to two years in Russia.”[4] He believed that if energy was included in the sanctions package, the negative impact on growth “[ … ] becomes substantially larger—maybe [shrinking] 15% or 20%, so substantial hits to the real economy. That spreads through the economy but obviously hits Russian consumers particularly”.[5] But he also noted that “I think that, unless something changes, Russia is now set on a path towards long-term economic isolation; and in those circumstances, there is going to be a period of less acute but persistent economic weakness—stagnation, if you like—for a long period”.[6]
- Alongside this hit to economic growth, Professor Chadha noted that “We currently expect [Russian] inflation to go into the region of 20% to 30%”.[7] The Russian rouble has also devalued, and its exchange rate remains volatile. At the time of writing, it is around 25% lower against the US dollar than it was immediately prior to the invasion.[8] However,
