Why are Yale and the IMF at odds over the Russian economy? Investment Monitor


At the end of July, two assessments of the Russian economy made headlines.

The first came from the Yale School of Management, following new research alleging the Russian economy has been crippled by pensions and trade sanctions.

The paper, led by Professor Jeffrey A Sonnenfeld, under whose guidance a team of 42 researchers (speaking 12 languages) created the widely used list of companies leaving or staying in Russia, relies on unofficial data sources. conventional data – such as high-frequency consumer data, cross-channel data-checks, news from Russia’s international trading partners, and mining of complex shipment data – to paint a grim but comprehensive picture of the Russian economy.

The document, in sum, advanced five arguments. First, Russia’s exports and imports are down significantly in its key market, Europe, while Vladimir Putin’s “pivot to Asia” is failing. Second, Russian manufacturers are running out of parts due to massive supply chain disruption. Third, consumer confidence has plummeted. Fourth, more than 1,000 foreign companies have left Russia, worth about 45% of the country’s GDP. Finally, the finances of the Russian state are strangled by the sanctions, while its foreign exchange reserves evaporate.

The Yale article explicitly criticizes the narrative that opposing Putin has cost the united front dearly, while proving less damaging to the “resilient” Russian economy. Enter the International Monetary Fund (IMF), garden side.

Was the IMF too cautious with its report on Russia?

Two days after the Yale report, the IMF released its World Economic Outlook update, which included several key findings, such as: Russia is doing better than expected despite sanctions (because it benefits from high energy prices).

In an interview with Investment Monitor, Yale’s Sonnenfeld castigates the report. “They had to naively accept Putin’s propaganda based on unverified and inconsistent statistics,” he says. “Someone should send the facts to the lazy IMF economists. At least we put our methods in a 120-page public document and published it. Where are their methods?

“What are the assumptions that are supported by his predictions? What statistics does the IMF rely on? None of these crucial methodological wrinkles show through in his report… If you go to his “methodology” on page seven of his report, [the economists] reveal that they have nothing to back up their assumptions, even to reveal their assumptions.

Investment Monitor sent Sonnenfeld’s comments to the IMF, giving right of reply. An IMF spokesperson responded as follows: “We would like to stress that there is an unusually high level of uncertainty. Our latest benchmark assessment of the Russian economy indicates that some sectors have been more resilient than initially expected, but that does not mean that Russia has fully resisted sanctions. We still expect a very significant economic contraction this year of 6%.

“In 2023, we expect the impact of the sanctions that accompanied the war to cause a further deterioration in economic output. We have a revision of -1.2 percentage points for [economic growth] Next year. More importantly, we project that by 2027 the economy will be about 15% smaller than projected before the war, and the gap will widen beyond 2027. That’s a substantial economic loss. and permanent.

The IMF report is indeed only a baseline assessment, unlike Yale’s deep dive. As such, Sonnenfeld’s vitriolic criticism calls into question the real value of the IMF’s rudimentary analysis of the Russian economy.

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