29.05.22 Sanctions Review

Import cuts will cost the Russian economy 4–10% of GDP, while China will only partially replace trade supply from advanced economies, says Bank of Finland Analytics Center

Depending on the severity of trade sanctions against Russia, its GDP might fall between 4 and 10%, according to a policy brief by the Bank of Finland Institute for Emerging Economies (BOFIT), while Russia's complete exclusion from global trade would cut its GDP by a quarter.

Following the annexation of Crimea and the first package of sanctions, Russia announced the import substitution strategy, but it showed results only in low-tech sectors, whereas in high-tech production the dependence on imports has only increased in recent years, another BOFIT study explains.

Meanwhile, collapsing imports from the West can only partially be replaced by domestic production or imports from China, especially in high-tech goods.

In addition, betting on China (whose share in Russian imports is steadily growing) will result in a one-sided dependence on a single trade partner.