220817 Russia
A person walks along the seashore at the Curonian Spit, a 98 kilometres long thin curved sand-dune spit that separates the Curonian Lagoon from the Baltic Sea coast near Lesnoy village, 50km north of Kaliningrad, Russia, Tuesday, Aug. 16, 2022. Image Credit: AP

Russia’s economy will contract less than expected and inflation will not be as high as projected three months ago, the economy ministry forecasts seen by Reuters showed, suggesting the economy is dealing with sanctions better than initially feared.

The economy is plunging into recession after Moscow sent its armed forces into Ukraine on Feb. 24, triggering sweeping Western curbs on its energy and financial sectors, including a freeze of Russian reserves held abroad, and prompting scores of Western companies to leave.

Yet nearly six months since Russia started what it calls a “special military operation”, the downturn turns out to be less severe than the economy ministry predicted in mid-May.

The Russian gross domestic product will shrink 4.2 per cent this year and real disposable incomes will fall 2.8 per cent compared with 7.8 per cent and 6.8 per cent declines, respectively, seen three months ago.

At one point, the ministry warned the economy was on track to shrink by more than 12 per cent, in what would be the biggest fall in economic output since the fall of the Soviet Union and a resulting crisis in mid-1990s.

The ministry now sees 2022 year-end inflation at 13.4 per cent and unemployment of 4.8 per cent compared with earlier forecasts of 17.5 per cent and 6.7 per cent, respectively.

GDP forecasts for 2023 are more pessimistic, though, with a 2.7 per cent contraction compared with the previous estimate of 0.7 per cent.

This is in line with the central bank’s view that the economic downturn will continue for longer than previously thought.

The economy ministry left out forecasts for prices for oil, Russia’s key export, in the August set of data and offered no reasons for the revision of its forecasts.

The forecasts are due to be reviewed by the government’s budget committee and then by the government itself.