IM_Dan_2022_0811.pub

However, given the scale of the material destruction caused by the war, rebuilding the economy will take years. [...] Russia also faces a steep short-term contraction given supply chain disruptions from border closures, the disruption of shipping into the Russian market even for non-sanctioned goods – shipping giant Maersk pulled out of the Russian market completely – and the shutdown of airspace, interrupting the supply of high-value, time-sensitive airborne cargo from the West. [...] As a recent Italian think tank assessment puts it, the Russian economy “… is trying to stabilize in a new equilibrium, looking for points of equilibrium between the models of Iran and North Korea.” Assuming the growth rate is cut in half, Russia’s economy in 2027 will remain well below its 2021 level in constant 2022 US dollar terms. [...] Russia’s recovery from the economic crisis that followed the collapse of the Soviet Union was based on trade integration, as it imported machinery and equipment paid for by petrodollars and welcome foreign investment. [...] The costs outlined above, which in good measure stem from the shutdown of Russia’s trade with the west due to trade costs and sanctions are thus inevitable and from the perspective of Europe and its allies necessary.