As a result of the war against Ukraine, Russia's economy will shrink by 8% in 2022. For comparison, the 1998 default cost the country a reduction of 5.4% in GDP.
This assessment was provided by the rating agency Fitch, according to "European Truth".
In addition, the agency forecasts 18% inflation in Russia this year. By 2023 growth of prices will slow down to 15%.
Fitch also predicts that the Central Bank of the Russian Federation will continue to raise the rate to curb inflation, so this year the rate may rise to 25%. World GDP will grow by 3.5% instead of the previously projected 4.2%.
It is noted that the forecast is indicative, and the real decline of GDP will depend on the duration of the war and sanctions.
"The expected decline is comparable to the fall during the crisis in 1998 and the global financial crisis... We expect financial conditions to deteriorate sharply as banks find it difficult to cope with enormous sanctions pressure. Foreign investment will decline due to restrictions on the activities of more and more international companies in Russia. Increased uncertainty will have a strong impact on domestic investment," - Fitch stated.
In addition, a ban on the export of certain Russian products imposed by Russia itself and an embargo from Western countries will lead to a drop in trade.
It is known that on August 17, 1998 the government of the Russian Federation declared technical default and refusal to fulfill obligations under their bonds. At the same time, it was announced that the ruble would not maintain a stable exchange rate against the dollar, which had been artificially supported by the Central Bank of the Russian Federation. This marked the beginning of one of the worst economic crises in Russia's history.
As a result, the Russian ruble devalued four times. About 20 million bank depositors lost their savings. There was a significant decline in manufacturing and living standards, a sharp jump in inflation. Russia's foreign debt reached 220 billion dollars which is five times more than all annual revenues of the treasury and amounted to almost 147% of GDP.
On March 9, Fitch downgraded Russia's credit rating to a pre-default state. In December last year, Fitch did not believe in a military confrontation between Russia and Ukraine.
According to the analysts of an American financial corporation Morgan Stanley, Russia risks losing its solvency in the upcoming months. Analysts predict Russia's default in the "Venezuelan style" already in April.
JPMorgan analysts warned that sanctions for a military invasion of Ukraine could lead to default.