Unprecedented sanctions against Russia to impair trade in Europe: IMF

Extraordinary sanctions imposed against Moscow over Ukraine war will weaken financial intermediation and trade and will surely lead to the recession, IMF officials said in a blog published on Tuesday

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."

IMF Managing Director Kristalina Georgieva said on Sunday that the fund believes that the Ukrainian crisis and sanctions against Russia will not lead to a worldwide crisis. Russia, however, is expected to experience a deep recession, she added, due to sanction pressure. She also said the IMF does not consider a default in Russia as an impossible scenario, given its funds to pay the state debt are frozen.

On Sunday, Russian Finance Minister Anton Siluanov said that Moscow remained committed to its obligations on the state debt and will continue to pay it in rubles until the West unfreezes its gold and foreign currency reserves.

On February 24, Russia undertook a special operation to demilitarize and de-Nazify Ukraine in response to requests from the Donetsk and Luhansk people's republics to defend themselves from intensifying attacks by Ukrainian troops. The Russian Defense Ministry has said the special operation is solely targeting Ukrainian military infrastructure. In response, the United States, European Union and their allies have imposed comprehensive sanctions on Russia.