Economic consequences of Russia’s aggression as of 15.00 April 15th, 2022

General economic indicators 

  • The British Center for Economics and Business Research estimates that Russia’s GDP will fall by 14% in 2022 as a result of sanctions. The Accounts Chamber of Russia admitted that Russia’s GDP will fall by more than 10% this year. According to JPMorgan analysts, Russia may face default. International sanctions against Russia have significantly increased the likelihood of the country defaulting on its public debt. Russia is due to pay off more than $ 700 million in government bonds this month. It is also projected that the Russian economy will fall by 35% in the second quarter of 2022 due to sanctions and by about 7% in the first year of their operation. Bloomberg Economics forecasts a 9% drop in GDP in 2022. According to Bloomberg, the first external default in a century (since 1917) looks virtually inevitable — in particular, the Russian Treasury has stopped paying dollar debts from Russia’s accounts in American banks. According to a recent study by ICE Data Services, data on debt insurance coverage gives almost 90% probability of Russia’s default within 12 months. According to experts from the World Bank and the IMF, Russia is close to defaulting on foreign debt and on the verge of a deep recession. According to Fitch, the invasion of Ukraine will reduce the Russian economy by 8% in 2022, while the default of 1998 cost the country a reduction in GDP by 5.4%. The agency predicts 18% inflation in Russia — the highest rate the country has had since 2022.
  • Russian companies Severstal, Siberian Coal Energy Company, and Uralkali have been unable to repay loans and profits to Eurobond holders. Severstal is the first company in Russia to enter a technical default. The world’s largest producer of diamonds, Russia’s Alrosa is not be able to pay interest on dollar-denominated Eurobonds maturing in 2024 on time. According to Bloomberg, Russian Railways became the first Russian company to officially default because of sanctions.
  • On April 6th, 2022, the Ministry of Finance of Russia transferred funds for the payment of coupon income and redemption of Eurobonds in rubles, which could mean default. The foreign correspondent bank refused to execute orders for Eurobonds maturing in 2022 and 2042 in the total amount of $ 649.2 million.
  • Russia has lost access to more than half of its gold and foreign exchange reserves. The total amount of reserves reaches $ 606.5 billion, having decreased by 6% compared to February 2022. Western sanctions have frozen $ 350 billion in Russia’s gold and foreign exchange reserves, about 60% of their volume, but the aggressor may continue to support the ruble at the expense of gas and oil supplies to the EU.
  • Net capital outflows from Russia increased to $64.2 billion in the first quarter of 2022, compared with $17.5 billion in the same period last year.
  • According to Bloomberg experts, the surge in inflation in Russia will be among the highest in the world since the beginning of the century. Annual inflation in Russia accelerated to 16.7% in March from 8.73% in January, its highest in seven years, and by the end of 2022 could reach the grade from 17% to 20%. Food prices rose by 9.9%, vehicle prices – by 30-60% in March 2022. 
  • According to Reuters, the world’s major trading houses plan to reduce the purchase of oil and fuel from Russian state oil companies as early as 15.05.2022 in order to avoid violations of EU sanctions against Russia.
  • According to the Yale School of Management, since the start of the full-scale Russian invasion of Ukraine, over 600 companies have completely suspended or restricted their business ties with Russia.
  • In 2022 unemployment in Russia may more than double and exceed 9% (about 2 million jobs) for the first time in 10 years. One in five Russian companies has laid off employees. 45% of companies in Russia will reduce or stop hiring new employees by the end of 2022.
  • In Russia, the insurance market will decrease by 10-30% against the background of rising interest rates, the departure of foreign companies and declining demand from customers. The advertising market in Russia may shrink by 50% or more, and for the top 6 ex-international advertising groups — by 60-90%.
  • 40% of developers froze construction throughout Russia due to the sharp rise in prices for building materials and financing. For two months the cost of building and finishing materials in the segment of the office market has increased by 30-49%. In Russia, sales are falling for 84% of small and medium-sized businesses as well as large retailers and restaurants have suspended or refused to open new outlets due to problems with the supply of new equipment. The fitness industry is experiencing a halt in sales of new club cards — the industry expects a shortage of equipment and components. Due to rising prices for auto parts, 5-10% of car services may close by 2023, and most of them will work in the shadows. Russian stores have begun to experience supply disruptions of plumbing fixtures, pipe fittings, tools, and construction chemicals.
  • In Russia, the demand for warehouse real estate is expected to decrease by 40-50%.
  • In Russia, the food industry is threatened by a shortage of phosphates, which can lead to higher food prices and deterioration of food quality.
  • As part of the EU sanctions against Russia under a ban on the supply of paints and varnishes, which account for at least 50% of the Russian market. The deficit of coated paper in Russia will be 40%: such paper is used for printing and is mainly imported from abroad, while Europe accounts for 70% of supplies.
  • Services of Russian private clinics may become up to 20% more expensive due to a shortage of imported equipment and consumables — prices for some consumables have risen by 300%.
  • In Russia, container market participants expect a serious shortage of containers after departing international lines finish evacuating their fleets (37.5-66% of the container fleet).
  • AACSB (Association for the Development of University Business Schools), BGA (Association of Business School Alumni), AMBA (Association of MBA Programs), EFMD (Global Network of Business Schools, Companies and Associations for Management Development) withdraw accreditation from all universities in Russia, thus Russians are blocked from working in foreign companies. Databases of scientific articles Scopus and Web of Science will stop sales and promotion of goods and services to Russian and Belarusian scientific organizations

Credit ratings 

  • Rating agency Standard & Poor’s (S&P) Global Ratings downgraded Russia’s foreign currency rating from CC/C to SD/SD, which means a selective default. The national currency rating remains at CC/C with a negative outlook. Ratings of some of the largest companies in Russia were downgraded to «C» and «CCC-» with a negative outlook. The changes affected companies such as Gazprom, Rosneft, Russian Railways, MTS, Alrosa and X5 Group. 
  • S&P Global Ratings, a unit of financial information provider S&P Global Inc, withdraws ratings for all Russian entities. S&P Global Ratings has revoked the ratings of a number of Russian banks: Alfa Bank and its holding company ABH Financial Ltd., Renaissance Credit Bank, Centrocredit Bank, Moscow Credit Bank (MKB) and its controlling shareholder Rosium, Gazprombank and its divisions — Gazprombank (Switzerland) Ltd. and Bank GPB International S.A., Soyuz Bank, RN-Bank, Raiffeisenbank, Russian Standard Bank, Unicredit Bank and Ural Bank for Reconstruction and Development. Before revoking the ratings, S&P downgraded them to «CC» from «CCC-» — two steps to the default rating. On Apr 12th, 2022 S&P downgraded Petropavlovsk, a gold mining company, to «selective default» and withdrew its credit rating.
  • According to the S&P production activity index, the stocks of finished goods and the speed of supply in Russia in March 2022 achieved the worst results since 2008.
  • International rating agency Moody’s downgrades Russia’s ratings to Ca from B3, the outlook is negative. Liabilities with such a rating are very speculative and probably in the process or very close to default, with little prospect of repayment of principal and interest. Moody’s intends to withdraw credit ratings on Russian entities. According to Moody’s Russia will default on 04.05.2022 if it does not pay the debt in dollars, euros, pounds or Swiss francs).
  • Fitch has downgraded Russia’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘C’ from ‘B’. The ‘C’ rating reflects Fitch’s view that a sovereign default is imminent.and has downgraded 26 Russian natural resource companies, placed the ratings of 28 entities on Rating Watch Negative (RWN) and maintained one company on RWN. 
  • Fitch withdrew the ratings of 27 Russian banks (Sberbank, Gazprombank, Rosselkhozbank, Alfa-Bank, Raiffeisenbank, etc.), their affiliates and their SPV companies. At the time of the recall, the banks’ ratings were at «CC». The ratings of the Swiss «daughters» of Sberbank and Gazprombank, Sberbank Leasing, as well as the Cypriot holding company Alfa-Bank ABH Financial Limited have been revoked.
  • In order to comply with European Union sanctions, Fitch Ratings intends to withdraw its ratings of all relevant Russian entities and their subsidiaries. In particular, the ratings of Evraz, X5 Retail, Petropavlovsk, Nord Gold, Yandex NV, Globaltrans, EuroChem Group AG (holding company «EuroChem»), Eurasia Drilling Company, as well as their subsidiaries specializing in bond placement were revoked.

Stocks, stock market 

  • The Central Bank of the RF has suspended trading on all markets of the Moscow Stock Exchange (from 28.02.2022). Moscow Stock Exchange opened on March 21st, 2022 and since April 11th, 2022, trades in Russian debt securities, shares of Russian companies and foreign shares issued by companies with business in Russia and in 52 mutual investment funds.
  • St. Petersburg Stock Exchange on April 15th, 2022, trades only in TCS Group securities, Fix Price and the exchange itself are traded and shares of the Stock Exchange itself; 
  • On March 29th, 2022, the Supervisory Board of Moscow Exchange recommended shareholders not to pay dividends for 2021;
  • The New York Stock Exchange and the Nasdaq Stock Exchange have decided to temporarily suspend trading in shares of Russian-based companies such as Yandex, MTS, Cyan, Mechel, Qiwi PLC, Nexters Inc, HeadHunter Group PLC, Ozon Holdings PLC. 
  • The Association of European Energy Exchanges (Europex) excluded the St. Petersburg International Commodity Exchange (SPIMEX) from its membership.
  • Investment companies BlackRock Inc. and Fidelity International refused to invest in Russian securities.
  • Clearstream and Euroclear clearing systems have blocked the accounts of the National Settlement Depository of the RF, which means that Russian investors with Eurobonds and foreign stocks will not be able to receive payments on the body of debt, coupons and dividends through these systems.

SWIFT

  • The EU, Switzerland, Canada and Japan disconnected 7 Russian banks from the SWIFT system (VTB, Russia Bank, Otkrytie Bank, Novikombank, Promsvyazbank, Sovcombank and VEB);
  • On March 17th, 2022, Australia imposed additional sanctions against 11 Russian banks, which occupy 80% of the market: Sberbank, Gazprombank, VEB, VTB, Rosselkhozbank, Sovcombank, Novikombank, Alfa-Bank and Moscow Credit Bank.

Ruble exchange rate, banks 

  • The US has banned the export of US dollars to Russia, and the EU has banned the supply of euro banknotes to Russia. Lithuania has limited the amount of cash in euros (60 euros) that can be exported to Russia for personal use.
  • The ruble has become the most volatile currency in the world. On April 15th, 2022, official XE is 81.28 RUB/USD and 88 RUB/EUR. At the opening of the Moscow Interbank Currency Exchange the dollar was 79.93 rubles, while the euro — 85.24 rubles.
  • Since April 11th, 2022, the Central Bank of the RF cancels the commission for the purchase of currency through brokers, which was previously set at 12%.
  • On April 1st, 2022, the White House stated that the ruble exchange rate no longer shows the real state of the Russian economy, as it is artificially supported.
  • In an effort to quell the crisis, Russia’s central bank more than doubled its key interest rate from 9.5% to 17%. 
  • In Russia, up to 50% of borrowers are denied credit vacations.
  • On April 1st, 2022, the Central Bank of the Russian Federation doubled the limit on remittances of individuals abroad to $ 10,000 per month. This does not apply to non-residents from «unfriendly» countries who do not work in Russia.
  • On April 15th, 2022, the Central Bank of Russia recommended that banks refuse to pay dividends and bonuses in 2022.
  • Russians in March 2022 withdrew $9.8 billion from foreign currency accounts, the outflow continued for the second month in a row.
  • On April 7th, 2022, Sberbank banned all transfers abroad in foreign currency.
  • On April 1st, 2022, Sberbank announced the closure of its London office following a reassessment of its economic potential as a result of the sanctions imposed by the United Kingdom on March 1, 2022.
  • Funds of individuals in Russian banks in February 2022 decreased by 1.2 trillion rubles. The outflow of funds from deposits became a record since 2008.
  • Against the background of rising bank rates in March 2022 in Russia recorded a collapse in the issuance of cash loans — by almost 90%.
  • Payment systems Visa, Mastercard, Google Pay, Samsung Pay, PayPal, Payoneer, MoneyGram, JCB, Paysera and transfer systems Western Union, Paysend, Wise completely stop working in Russia and stop all card transactions. American Express has blocked access to the payment system of several Russian financial institutions. Finotech application Revolut has stopped transferring money from Russia and vice versa. 
  • Foreign online stores began to block payments on Union Pay cards issued in Russia.
  • Apple Pay and Google Pay disconnected Russian Mir cards.
  • Russia’s VTB Bank closes its London branch due to sanctions.The «daughter» of VTB Bank — RCB Bank has begun liquidation;
  • On April 7th, 2022, the EU imposed a ban on transactions with the 4 largest Russian banks, including VTB Bank, which together account for 23% of the Russian market. The ban on cryptocurrency deposits, the sale of banknotes and securities in any official currency of the EU member states to Russia, or any natural or legal person in that country has also been extended.
  • Citigroup, BNY Mellon, BNP Paribas, Crédit Agricole, Swedbank, SEB cease banking business in Russia. UniCredit Bank and OTP Group are considering the option of terminating its activities in Russia. ING Bank and Saxo Bank refuse any new business contacts with Russian companies. Mitsubishi UFJ, Sumitomo Mitsui, Mizuho have stopped dollar operations with Sberbank. 
  • In Russia, since the end of February, trading in the NFT market has fallen by 32%.
  • Japanese authorities have ordered cryptocurrencies not to process transactions involving cryptocurrencies that are subject to sanctions on the freezing of Russian assets.
  • The world’s largest cryptocurrency exchange Binance will no longer support Mastercard and Visa cards issued in Russia. On March 21st, 2022 Binance disconnected Russian sanctioned banks (Sberbank, Gazprombank, Alfa Bank, Otkrytie, VTB, Bank Card Transfer (Russia), SBP — Fast Bank Transfer, Mir) and payment systems from the possibility of P2P transactions.
  • According to Bloomberg, the cryptocurrency market is considered too small to circumvent the sanctions imposed on Russia. 

Trade measures, embargoes 

  • Ukraine has imposed a complete embargo on imports of goods from Russia, which will block 6 billion dollars in foreign currency receipts to Russia annually.
  • Canada, the UK, Australia have imposed 35% tariffs on all goods from Russia.
  • The US, EU, UK, Canada, Japan, Albania, Australia, Iceland, Republic of Korea, Moldova, Montenegro, New Zealand, Northern Macedonia and Norway deprived Russia of the most-favored-nation treatment (MFN) in trade. Japan has announced a similar intention.
  • The US, Japan and EU countries have banned the import of Russian coal.
  • The US have banned the import of Russian oil and gas, banned citizens from making new investments in Russia. From 16.03.2022 the US ban the export of both weak (beer, wine) and strong (rum, whiskey, vodka, tequila) alcoholic beverages, tobacco products, including cigars, any perfume and eau de toilette, fur and leather products, silk, camping equipment, luxury clothing and footwear worth more than $1,000, precious stones, pearls, silver jewelry, non-monetary gold, expensive watches, pianos and antiques, engines for ships and other equipment, some new and used vehicles (including motorcycles and mopeds).
  • The largest consumers of Russian oil are boycotting it and have in fact been subject to individual sanctions. The consulting company Energy Aspects said that 70% of Russian oil «is struggling to find buyers.»
  • Canada and the United Kingdom have announced plans to ban all crude oil imports from Russia. Poland is going to impose an embargo on Russian coal and propose not to buy oil in the coming months. Denmark will refuse Russian gas;
  • Poland will not renew its long-term contract for the purchase of Russian gas, which expires on December 31st, 2022. Bulgaria to stop using Russian gas by 2023. Germany agreed gas deal with Qatar. Lithuania has been the first EU country to completely abandon Russian gas imports since early April 2022. Estonia will completely stop importing Russian gas by the end of 2022;
  • Japan has banned the export of oil refining equipment and technology and of technological products (266 goods and 26 technologies) to Russia, including semiconductors, communications equipment, sensors, radars and encryption devices, programs for machines that make microchips, effective since March 18th,.2022.
  • Australia has imposed an immediate ban on exports of alumina and aluminum ores, including bauxite, to Russia.
  • The EU and Switzerland have banned the export to Russia of certain goods and services of the oil sector, certain goods and technologies that can be used in aviation and space, as well as the supplying of certain services related to these goods, such as insurance, repairs, inspections, mediation services and financial assistance.
  • On March 9th, 2022, the EU imposed restrictions on exports to Russia of goods related to maritime navigation and radio communications. The EU plans to abolish the most-favored-nation treatment for Russia, ban the export of cars worth more than 50,000 euros (including Audi, BMW, Mercedes, Ferrari and Porsche) and boats, planes, chairlifts and motorcycles worth more than 5,000 euros.
  • On March 15th, 2022, the EU and UK banned the export to Russia of luxury items, including cars, haute couture fashion, works of art;
  • The EU and Switzerland imposed comprehensive export restrictions on equipment, technology and services for the energy sector and further trade restrictions on cast iron and steel, and banned new investments in Russia’s energy sector;
  • On April 7th, 2022, the EU:
  • banned exports to Russia worth 10 billion euros annually (jet fuel, quantum computers and high-tech semiconductors, high-quality electronics, software, sensitive machines and transport equipment);
  • banned imports from Russia of a number of goods and raw materials such as wood, cement, fertilizers, seeds, seafood and alcohol worth 5.5 billion euros annually;

For reference. Since 10.07.2022 the EU introduces quotas on imports of a number of Russian fertilizers for a period of 1 year. Quota for the import of potassium chloride — 837.57 thousand tons, complex and other fertilizers with potassium content — 1 million 577.807 thousand tons. The amount of quotas may be adjusted by the European Commission. Restrictions do not apply to deliveries until 10.07.2022 within the framework of contracts concluded before 09.04.2022.

  • prohibited Russian companies from participating in European public procurement.
  • Because of the EU sanctions, Russia has lost the opportunity to supply forest products for about $6 billion a year, and refocusing on China will not cover the losses.
  • On April 11th, 2022, the EU banned exports of oil refining and natural gas liquefaction equipment.
  • The UK banned imports of iron and steel products, as well as exports of quantum technologies, advanced materials and luxury goods since April 14th, 2022.
  • Switzerland banned imports of Russian vodka, seafood, wood and cement.
  • Argentina and Chile suspended shipments of lithium ore to Russia.
  • Russia will lose up to $ 15 billion in arms exports due to sanctions and the fact that the world has seen the ineffectiveness of Russia’s weapons;
  • In Russia, the supply of juices and milk to stores began to disrupt due to shortages of packaging materials — cardboard and tetrapack. Pharmaceutical companies have faced serious problems in purchasing coated cardboard from the EU, which is used to pack medicines. The devaluation of the ruble and logistical problems could lead to a drop in alcohol imports to Russia by 20-40% by year. The cost of all imported components will inevitably lead to higher prices for Russian wine — at least 15% in 2022. Imports of imported fish (primarily salmon, tuna, shrimp) to Russia due to sanctions will be reduced by 28-35% year on year.   

Airspace + aviation cooperation 

  • The EU authorities have decided to completely ban the supply and leasing of aircraft, helicopters and other aircraft to Russia, as well as their insurance and maintenance. The Bermuda Civil Aviation Authority (BCAA) has suspended the airworthiness certificates of Russian Bermuda-registered aircraft. 
  • On March 17th, 2022, Rosaviatsia issued certificate to Aeroflot provider for maintenance and repair of aircraft for maintenance of Boeing and Airbus aircraft.
  • 78 Russian airlines planes on lease have been seized abroad. Therefore, the Russian airline Red Wings plans to return to the owners of 8 Airbus aircraft left in it to avoid the arrest of their Sukhoi Superjet aircraft while flying abroad.
  • Russian companies have received requests from foreign lessors to return more than 500 aircraft worth a total of $ 20 billion.
  • On April 11th, 2022, the EU added 21 Russian airlines to the list of banned ones, including Ural Airlines, Aeroflot, Pobeda, Russia, Utair, and Nord Wind.
  • 38 countries have already closed their skies to Russia (USA, Great Britain, Canada, Australia, Albania, Iceland, Norway, Moldova, Northern Macedonia, Switzerland, Montenegro and all EU countries). 
  • Boeing, Airbus, Embraer and engine manufacturer CFM International have stopped servicing Russian airlines, including the supply of spare parts, pilot training in Russia, and the purchase of titanium in Russia. 
  • German Lufthansa, Azerbaijan’s AZAL and Buta Airways, Kazakhstan’s Air Astana, Turkey’s Pegasus Airlines, Korean Air, Air Serbia, Vietnam Airlines, Armenia Airlines, SriLankan Airlines, Air India are suspending flights to and from Russia. Turkish Airlines stops transporting Russians to all countries except Turkey.
  • Planes of the largest cargo carrier in Russia «Volga-Dnepr» completely stopped flights. European regulators have banned flights of British and German airlines. 
  • The United Kingdom is imposing aviation sanctions, which give the right to detain any Russian aircraft and ban the export of aviation or space goods to Russia. 
  • China has refused to supply Russian airlines with spare parts for aircrafts. 
  • On April 7th, 2022, the US Department of Commerce deprived 3 Russian airlines of export privileges: Aeroflot, Azur Air, Utair.
  • The Russian aviation industry does not receive components from abroad, even on prepaid orders. 
  • An aircraft in Russia could break down in 5 months due to the closure of the Rostov Civil Aviation Plant № 412. Russia’s Pobeda is reducing its fleet from 41 to 25 Boeing aircraft due to a lack of spare parts.
  • The largest airport in Russia — «Sheremetyevo» — sent on downtime 40% of staff (6-7 thousand people) against the background of EU and US sanctions against the Russian aviation industry. Russian airline AZUR air also sent some employees to idle.
  • Pobeda Airlines has announced the transition to a four-day work week from June 1st, 2022 for the ground team, including managers.

Other transport connections

  • The EU has banned access to EU ports by vessels registered under the Russian flag (except for agricultural and food products, humanitarian aid and energy);
  • The EU has banned the work of Russian road transport operators, which will block their freight transport by road within the EU, including transit (except for pharmaceutical, medical, agricultural and food products, including wheat, humanitarian goods);
  • Finland canceled passenger trains, freight and postal communication Russia and closed entry to the country for all trucks with Russian license plates. 
  • State company Lietuvos gelezinkeliai (LTG, Lithuanian Railways) is closing its representative offices in Russia;
  • The Posts of Latvia, Poland, Sweden, Denmark, Finland and Australia, in response to Ukrposhta’s calls, have already filed the relevant documents with the Universal Postal Union to stop delivering items to and from Russia.