The International Monetary Fund has drawn criticism for forecasting that Russia will see stronger economic growth this year than either the United Kingdom or Germany, despite rising pressure from Western sanctions.
But Kristalina Georgieva, the IMF’s managing director, told CNN’s Poppy Harlow that the economic outlook for Russia beyond 2023 is “quite devastating.”
“When you take our projections over a medium term, what they mean is Russia[’s economy] shrinking by at least 7%,” Georgieva said in an interview that aired Wednesday.
In January, the IMF projected that Russia’s economy would expand by 0.3% this year and 2.1% the next. That was much more optimistic than the latest forecasts from both the World Bank and the Organization for Economic Cooperation and Development. Economists at those groups have penciled in contractions of 3.3% and 5.6% in 2023, respectively.
Even Russia’s own central bank, which extended emergency capital controls for another six months on Monday, has said gross domestic product might contract by 1% this year.
Jeffrey Sonnenfeld, a Yale management professor, wrote in Fortune magazine Monday that the “IMF has been asleep at the switch” and parroting propaganda from Russian President Vladimir Putin.
“With respect to Russia, it is naively echoing Putin’s own invented GDP forecasts, in effect, canonizing and legitimating these economic myths with no verification,” said Sonnenfeld and two colleagues, Stephen Roach and Steven Tian.
Sonnenfeld has kept a list of Western companies curtailing operations in Russia since its invasion of Ukraine one year ago and has called for firms to exit the country.
Georgieva told CNN that Russia’s economy would suffer over time as workers emigrated and access to technology was cut off, and as sanctions on its vast energy industry took a toll.
“This year what we reflect on is that Russia has managed to direct some of [its] oil sales beyond the markets of the European Union,” she said, referring to Russia’s success in rerouting crude shipments to China and India. “That is not going to be a lasting impact for the Russian economy.”
“We don’t see Russia in any way benefiting from what they have caused to Ukraine and to themselves.”
Following Europe’s recent import bans on seaborne Russian crude and oil products, Moscow’s finances have shown signs of strain. On Monday, the Russian government reported a budget deficit of 2.58 trillion rubles ($34 billion) for January and February, compared with a surplus of 415 billion ($5.5 billion) rubles in the same period in 2022. It said oil and gas revenues had fallen 46% year-over-year.
Inflation fight continues
Meanwhile, the US and European economies have proven surprisingly resilient, Georgieva said. She pointed to the strength of their job markets and Europe’s swift action to limit reliance on Russian energy.
“All of this contributes positively to our prospects for growth,” Georgieva said. “We don’t see [a] global recession in the cards for this year.”
That won’t prevent a global slowdown, however, as central banks continue their campaigns to bring inflation down from the highest levels in decades. The IMF expects world economic output, which grew 3.4% in 2022, to rise 2.9% in 2023.
Yet according to Georgieva, it’s essential policymakers don’t ease up on interest rate hikes prematurely, lest prices soar again.
“Stay the course,” Georgieva advised Federal Reserve Chair Jerome Powell.
The Fed slowed the pace of rate hikes last month, but Powell indicated in testimony to Congress Tuesday that the central bank may need to turn hawkish again.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. The Fed “would be prepared to increase the pace of rate hikes” if necessary, he added.
— Olesya Dmitracova contributed reporting.