Morgan Stanley: Russian Economy Headed for Recession If U.S. Imposes New Sanctions

American bank Morgan Stanley has forecasted that the Russian economy will hit a recession if the U.S. imposes new sanctions against state companies, despite a projected oil price of $90 per barrel by 2020 due to increased demand, Russian news outlet RBC reported Friday.

Other banking majors Goldman Sachs and Citi Bank cut Russia’s GDP growth forecast this week from 3.3 percent and 2.3 percent respectively to 2 percent. Morgan Stanley followed with its own downgraded expectations – from 2.3 to 1.8 percent.

Russia’s economy minister said this week that 2018 GDP forecasts will be revised downward from 2.1 percent over slow growth in January-March. Morgan Stanley believes that the sanctions and the weakening of the ruble will contribute to inflation to 4.1 percent in 2018.

Changes in the government do not involve the preparation of fundamental reforms, with the exception of pension, Morgan Stanley said.

Washington imposed sweeping sanctions on some of Russia’s biggest companies and businessmen on April 6, striking at allies of President Vladimir Putin to punish Moscow for its alleged meddling in the 2016 U.S. presidential election and other “malign” activities.

This week, Trump ordered his secretary of state to draft new measures against Russia for violating a Soviet-era arms control treaty, which Moscow denies.

Moody’s rating agency said last month that Russia’s strong public and external finances would shield its economy from the impact of the latest U.S. sanctions. But it also warned the sanctions would be credit-negative for some Russian debt issuers, especially aluminum maker Rusal.