GDP could fall by 11pc in a recession comparable to the 1998 financial crisis
Russia faces a crushing economic recession on the scale of its 1998 financial crisis, top analysts have predicted, with savings wiped out and the currency devastated.
Sanctions imposed by western nations and their allies in response to the invasion of Ukraine will slash the size of the country’s economy by 11pc in the coming months, according to forecasts by JP Morgan.
Bruce Kasman, an economist at the investment bank, predicted a crash “in line with the drop in the 1998 debt crisis.”
“The sanctions will hit their mark on the Russian economy, which now looks headed for a deep recession.”
The rouble has fallen by 40pc in the past fortnight, driving up the cost of imported goods and forcing the central bank to more than double interest rates in an effort to defend the currency.
Before the war about 75 roubles were needed to buy $1, but that has now risen to 124 roubles.
Kay Neufeld and Pushpin Singh at the Centre for Economics and Business Research said the financial sanctions “all have the aim of starving the financial system of access to foreign currency. Taken to their extreme the sanctions could bring about the total collapse of the rouble and the Russian banking system.”
They added: “Inflation will likely be rampant. This would wipe out the savings of the Russian middle-class and lead to serious impoverishment for the less well-off.”
On Friday, Russia’s central bank kept the Moscow stock exchange closed for a fifth consecutive day, marking its longest closure, as the bank desperately attempts to stave off financial collapse in the wake of a wave of western sanctions.
In 1998, the exchange was shut for four days when the country was in the midst of a severe financial crisis.
The closure also represents the longest cessation of trading of any international stock market since Egypt’s stock exchange was closed for nearly two months in early 2011 amid protests that toppled President Hosni Mubarak’s 30-year regime.
Western businesses continue to desert the pariah nation, further isolating the Russian economy.
Microsoft has stopped all sales in Russia, making it one of the largest companies to take action in response to the invasion of Ukraine.
The software giant behind Windows, Xbox and Office said it would “suspend all new sales of Microsoft products and services in Russia” but continue honouring existing relationships.
Brad Smith, the president of Microsoft, said: “Like the rest of the world, we are horrified, angered and saddened by the images and news coming from the war in Ukraine and condemn this unjustified, unprovoked and unlawful invasion by Russia.”
He said the company was also stopping many aspects of its business to comply with government sanctions against Russia.
It came after Google, the world’s biggest advertising company, suspended its ad business in Russia in a blow to the country’s digital economy, and Facebook and Instagram blocked RT in the UK.
Google said it would pause its advertising businesses including ads on its search engine, YouTube and its massive display advertising operation.
The latter runs adverts for millions of websites, meaning its suspension cuts off a key income stream.
At the same time Russians are also fleeing the country, bringing its own severe economic consequences.
Russia's parliament has passed a draconian law that will punish anybody spreading "fake news" about Vladimir Putin's invasion of Ukraine with 15 years in prison, part of a clampdown on society that has triggered a mass exodus of young urban Russians.
With only a handful of countries still accepting flights from Russia, most people were fleeing to the capitals of former Soviet states, previously regarded as offbeat holiday destinations, to set up a new life.
In Yerevan, the capital of Armenia, Russian could, unusually, be heard throughout the city and in Almaty, the largest city in Kazakhstan, fleeing Russians have already pushed up the price of renting and buying apartments.
The exodus of some of Russia's brightest talent is part of an economic outflow that has already wiped out Moscow's cultural and nightlife scenes.
With customers fleeing, inflation rising and the rouble sinking, several top bars and restaurants have closed and cultural venues have scrapped their schedules.
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Moscow and St Petersburg have seen protests against Putin's aggression Credit: NATALIA KOLESNIKOVA/ AFP