Russia’s economy is doing better than expected despite Western sanctions imposed on Moscow over the war in Ukraine, the International Monetary Fund says in a new report.
The sanctions were imposed to sever Russia from the global financial system and choke off funds available to Moscow to finance the war.
However, the Russian economy appears to be weathering the storm of the sanctions as the country’s GDP estimate was upgraded for this year by a remarkable 2.5 percent, according to the IMF’s latest World Economic Outlook released on Tuesday.
The main reason why Russia’s economic downturn is not as bad as expected is that “the Russian Central Bank and the Russian policymakers have been able to stave off a banking panic or financial meltdown when the sanctions were first imposed,” IMF Chief Economist Pierre-Olivier Gourinchas told AFP in an interview.
Another reason is that rising energy prices are “providing an enormous amount of revenues to the Russian economy,” Gourinchas added.
According to the agency’s report, “Russia’s economy is estimated to have contracted during the second quarter by less than previously projected, with crude oil and non-energy exports holding up better than expected.”
The IMF says Europe is bearing the brunt of the fallout from sanctions given its reliance on Russia for energy. The situation could worsen dramatically if Moscow cuts off gas exports to Europe.
This comes as the IMF also said on Tuesday that the US has only a slim chance of avoiding an economic downturn given the many risks it faces.
“It’s a very narrow path,” Gourinchas said. “The current environment suggest that the likelihood that the US economy can avoid a recession is actually quite narrow,” AFP reported.
He warned that even a “small shock” could tip the US economy into recession.