JPMorgan: Russia threatens GDP collapse as in 1998 bankruptcy

The attack on Ukraine could cause as much damage to the Russian economy as the 1998 bankruptcy, warns JPMorgan Chase.

An assessment that followed the international outcry over the bombing of the Ukrainian nuclear power plant in Zaporizhia.

According to analysts at JPMorgan Chase & Co., the huge problems in Russian exports due to international sanctions suggest that the collapse of the Russian economy may be comparable to the effects of the country’s bankruptcy 24 years ago.

Hours after Fitch and Moody’s downgraded Russia to junk, the US investment firm expects Russia’s recession to hit 7% this year, up from 5.3% in 1998.

Sanctions imposed on Russia’s central bank, along with the exclusion of Russian banks from SWIFT, have hampered Russia’s ability to sell oil and gas, according to JPMorgan.

“Russia’s export earnings will take a hit and capital outflows are likely to be immediate, despite its large current account surplus,” the analysts said. “Imports and GDP will collapse.”

The invasion of Ukraine has caused great uncertainty in oil markets, with buyers avoiding trade with Russia as the West seeks to isolate it from financial markets.

Unprecedented restrictions by the Bank of Russia have sharply curtailed its ability to defend the ruble, which has already fallen more than 30 percent against the dollar this year. Instead, policymakers more than doubled the key interest rate to 20% and tightened capital controls.

“The sanctions undermine the two pillars of stability, the central bank’s foreign exchange reserves and Russia’s current account surplus,” JP Morgan analysts said. “The sanctions will leave their mark on the Russian economy, which is headed for a deep recession,” they added.

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source: iefi merida