Russia could fall into a recession by summer, an economist says

• The US, UK, and EU have imposed sanctions on Russia in response to its invasion of Ukraine.
• Russian economist Evgeny Nadorshin explains how the sanctions will impede consumer demand and economic growth.

A Russian economist says the country could fall into a recession as early as next month as sanctions from the US, UK, and EU take their toll.

Already, some of the country's banks have been blocked from key global financial communications system SWIFT. The US and its European allies have frozen Russian assets, and imposed personal sanctions against figures like President Vladimir Putin. The Russian ruble, the country's currency, fell to a record low, and interest rates have already more than doubled. As Insider's Joseph Zeballos-Roig and Ben Winck report, some of these sanctions might still take months to have a visible impact, but others are already rippling across the country.

Evgeny Nadorshin, the chief economist at Moscow-based PF Capital, thinks that that recession could be coming soon.

"It's pretty obvious to me and to many others that Russian economy is very likely to fall into recession as early as second quarter," Nadorshin told Insider.

Economists define recession as a widespread economic downturn that sticks around for over a few quarters; as Insider's Erik Sherman explains, a typical definition of a recession is when gross domestic product (GDP) falls for two quarters straight.

It's the latest marker of how Western sanctions are upping the economic ante on Russia following its invasion of Ukraine, and there's still more that the West could do to escalate. It comes as everyday Russians have low savings and went on spending sprees during the economic recovery, according to Nadorshin — setting the stage for incomes to fall.

Increased demand for goods will decrease by the end of March, Nadorshin said. "With the start of the Q2, the economy will go into recession."

Russians borrowed money to spend their way to an economic comeback post-pandemic

In 2021, Russia's banks saw record profits, according to the Moscow Times. Russia's Central Bank reported in January that consumer loans surged by 20.1% throughout the year, compared to an 8.8% increase the year prior. Consumer spending swung back rapidly after the initial phases of the pandemic, rising 20% between Q3 2020 and Q3 2021.

"A significant part of the Russian recovery, which has happened last year, happened because of the extensive demand for loans," Nadorshin said. "Loans supported consumer demand, consumer demand supported economic growth."

Along with the recession, he said, unemployment may rise, reversing the trend of recovery following the pandemic. And household income could stop growing, or growth will decelerate as inflation picks up — "this will generate a situation where in real terms, consumer income will start decreasing again."

"Because of the environment of, let's call it lost opportunity, unfortunately the Russian economy will not be able to grow rapidly under such sanctions," Nadorshin said.

Economist Steven Durlauf, a professor University of Chicago Harris School of Public Policy, signed on to a letter from economists opposing the war. He said that potential severity of a recession will depend on "how persistent the sanctions are."

"Keep in mind that even though these sanctions are at historically high levels for Russia, they are not at the limits," Durlauf told Insider.

"For the whole period the sanctions are in place, it's very likely that Russian economy will not be able to grow rapidly," Nadorshin said. "So stagnation is the best description in terms of economic growth of the Russian economic prospects right now. Anything better than that will be already good and optimistic."