Washington:Extraordinary sanctions imposed against Moscow over the Ukraine crisis will weaken financial intermediation and trade and will surely lead to the recession, International Monetary Fund (IMF) officials said in a blog published on Tuesday.
"The toll is already immense in Ukraine. Unprecedented sanctions on Russia will impair financial intermediation and trade, inevitably causing a deep recession there," the article, written by Alfred Kammer, Jihad Azour, Abebe Aemro Selassie, Ilan Goldfajn and Changyong Rhee, said. "The ruble's depreciation is fueling inflation, further diminishing living standards for the population."
The authors went on to say that energy is the "main spillover channel for Europe" due to Russia being a vital source of natural gas imports. "Wider supply-chain disruptions may also be consequential," the blog said. "These effects will fuel inflation and slow the recovery from the pandemic." Moreover, Eastern Europe will see increasing financing costs and a refugee influx, the authors added.
"European governments also may confront fiscal pressures from additional spending on energy security and defence budgets," the article said. "While foreign exposures to plunging Russian assets are modest by global standards, pressures on emerging markets may grow should investors seek safer havens. Similarly, most European banks have modest and manageable direct exposures to Russia."