Will crippling Russian economy stop Putin?

A week since Russian forces invaded Ukraine; President Vladimir Putin's economy is feeling the effects of global condemnation. Matthew Boesler reports in Bloomberg Businessweek today, the world has weaponized finance to punish Russia, slapping it with sanctions and limiting its access to capital and currency.

That leaves the country facing what Bloomberg Economics calls “four intersecting crises”, which they predict will unite to tip Russia into a deep recession and cool growth elsewhere.

Crisis 1: A bank run provoked by concern over the safety of deposits

Crisis 2: A credit crunch as lenders retrenches amid losses

Crisis 3: A freefalling ruble amid the freezing of reserves, diminished trade and a rush to safety

Crisis 4: A debt default as assets held abroad are frozen and Russia retaliates

 Just how much pain there will be is hard to say, but this chart shows the implications of each shock:

“Historical comparisons illustrate the difficulty of making a precise estimate of the impact on Russia’s economy,” said Bloomberg economists Scott Johnson, Jamie Rush and Tom Orlik. “What’s clear is that it will be big.”

Capital Economics reckons Russia’s gross domestic product will slide to become the 14th-largest economy from 11th.

The National Institute for Economic and Social Research of UK estimates the conflict could knock US$1 trillion off the value of the world economy and add 3% to global inflation. 

There will also likely be new chapters especially given it's hard to tell how long the conflict will last. Foreign governments may ultimately impose curbs on energy exports and Russia may slow the supplies itself. China could become a backdoor source of money. Moscow also has US$150 billion of external debt due in the next 12 months, which it may choose not to pay.

As for the rest of the world, Bloomberg Economics says Eastern Europe will be especially hurt, while US$120 oil will pose a material hit to growth in the euro-area. Central banks will face even more complicated choices.

For now though, the people of Russia appear more resigned than panicked, as this story from Moscow shows.

Many Russians, who have seen numerous bank runs over the last three decades, are for now approaching the descending hardship with fatalism. 

“As strange as it sounds, in general there’s no panic at stores or ATMs,” said Elmira, who works in education in Ufa in the Urals region. She declined to give her last name.

“There’s clearly no easy solution, but I wasn’t about to run and buy up EUR or US$ or get something just to spend money,” she said.