A shuttered stock market, close to default, business boycotts and a rush to the cash machines: the Russia economy is on its knees just eight days into the invasion.
The scale of the looming economic collapse has clearly alarmed Russia’s business elite following a tidal wave of Western sanctions with oligarchs close to Vladimir Putin breaking cover to criticise the invasion.
JPMorgan warned on Friday that the country is facing a hit as great as Russia’s 1998 financial crisis, predicting an 11pc peak-to-trough GDP plunge. The Centre for Economics and Business Research expects a 14pc hit in lost output in Russia over two years.
Oil and gas is still flowing from Russia to Europe, keeping a vital revenue source for its economy and the Kremlin intact.
But shoppers and industries, including banking, shipping, aviation and retail, are already feeling the heat as the West severs economic ties and turn Russia into a pariah state.
Debt default and a market rout
Putin has trashed Russia’s reputation with investors in a matter of days and brought the country to the brink of default.
Credit default swaps, which signal the risk of the Kremlin defaulting on its sovereign debt, have soared to a record high.
They point to a 65pc chance of the Russian government defaulting, meaning it cannot repay its debt and misses payments, such as on the interest. Analysts believe Moscow may choose to pay local bondholders while shunning foreign creditors.
Russia last failed to pay its bondholders in 1998 when the country plunged into a financial crisis and a deep recession.
“Once you go into default, then it takes a long time to negotiate restructurings, a long legal battle and then they have to climb back up the rating scales,” says Tim Ash, an emerging markets strategist at BlueBay Asset Management.
“Russia is going to pay a high price for this for a very long time. Its borrowing costs will remain very high for a long time, even with peace.”
Russian assets have taken a battering on financial markets, forcing Moscow to shutter its stock market indefinitely.
The rouble has plunged by 35pc against the dollar to hit record lows since mid-February and many analysts warn it could slide even further. The slump will ramp up the pressure on ordinary Russians as it will stoke inflationary pressures by lifting the cost of imports.
Meanwhile Russian stocks are being held in suspended animation after Moscow’s stock market was closed on Monday.
Its blue-chip stocks had already plunged by a third in just weeks but analysts expect them to crash much further when Moscow’s market finally reopens.
Russia’s banking sector has felt the full force of Western sanctions. There are fears an economic crisis could soon trigger a full-blown bank run that devastates its financial sector with Russians rushing to cash machines following the invasion.
Many Russian banks have been cut out of the Swift payments messaging system, making it much more difficult for them to do cross-border transactions. Its lenders are also being cut out of Western financial systems with some having their assets frozen or restricting what they can do in the likes of the UK, US, Switzerland and EU, such as issuing bonds.
“These measures deny or significantly diminish the access of the Russian banking system to the global financial system, markets, and infrastructure,” say analysts at S&P Global Ratings.
Russia’s biggest bank, Sberbank, has ditched most of its subsidiaries in Europe after facing “abnormal cash outflows and threats to the safety of its employees and branches”.
The West has also targeted the central bank, dealing a huge blow to Putin’s crumbling “Fortress Russia” plan to reduce the impact of Western sanctions.
Moscow had built up a $630bn foreign exchange warchest to help prop up the sinking rouble, but sanctions mean half of that is now out of reach after the freezing of its assets, massively reducing its currency firepower.
Bruce Kasman, economist at JPMorgan, says the Swift and central bank sanctions will disrupt earnings from exports and the rush of money out of Russia “will likely be immediate”.
“Downward pressure on the rouble and capital flight are pushing the Central Bank of Russia to raise rates dramatically and impose capital controls,” he says.
Russians will soon begin to feel the squeeze from sanctions on shop shelves and in prices as countless businesses boycott the country.
Apple, the world’s most valuable company, and Microsoft have both suspended sales of their products in the country while Google has restricted some of its services.
Swathes of film launches and concerts have been cancelled, while sales of Volkswagen cars and Nike and H&M clothing in Russia are also being curtailed.
The boycotts will reduce the goods on offer to Russians while the price of products will rise sharply as the cost of imports is sent soaring by the rouble’s collapse.
The inflation surge will “add to the squeeze on household incomes” in Russia, according to Liam Peach, economist at Capital Economics.
“The path for inflation depends on the extent of disruption to imports, and hence whether there are any goods shortages, as well as the value of the rouble in the coming weeks and months.”
Aviation and shipping
Russian planes have been banned from entering the airspace of numerous countries, including Canada, the EU, the US and the UK.
The Kremlin has retaliated with its own bans in a move that is adding hours to some intercontinental flights. State-run airline Aeroflot has been removed from travel booking systems while Airbus will end its support of the country’s aviation industry, stopping parts being delivered and maintenance.
Global shipping giants are also joining boycotts with the world’s three biggest container lines halting cargo shipments to and from Russia.
The cost of insurance to cover ships in the Black Sea has rocketed with an Estonian cargo ship on Thursday sinking following an explosion close to the Ukrainian port of Odessa.