(Yahoo!Finance) - JPMorgan is among the first Wall Street banks to take a stab at estimating the economic fallout for Russia from fresh Western sanctions after its invasion of Ukraine.
And it isn't pretty.
"We tentatively assume that Russia’s economy will contract 20% quarter over quarter, saar [seasonal adjusted annualized rate], in 2Q, and for the year around 3.5%. But the margin of error for any such guesstimate is incredibly high at this point, and risks are skewed heavily to the downside. Moreover, we believe Russia’s growing political and economic isolation will curtail Russia’s growth potential in years to come and lower Russia’s trend growth to 1.0%, down from 1.75% previously," JPMorgan strategists warned in a new note on Monday.
The bank's strategy team added the Russia economy will likely enter recession.
The warning from JPMorgan's analysts comes after a new wave of sanctions from the West over the weekend.
Western allies moved to block "selected" Russian banks from the SWIFT payment system. The decision essentially denies Russia access to financial markets globally and opens its economy up to a potentially severe decline.
[For more on SWIFT, check out the latest Yahoo U.]
Russia's central bank reserves have effectively been frozen amid the decision, says Deutsche Bank strategist Jim Reid. The country had about $630 billion of foreign reserves, a majority of which likely resides directly with G10 banks and central banks, points out Reid.
"These sanctions will almost certainly hit their mark on the Russian economy which now looks headed for a deep recession and the imposition of capital controls," JPMorgan's team added.
Meanwhile, oil giant BP said it would divest its 19.75% stake in Russian controlled oil company Rosneft. The action will come with a hefty $25 billion charge. BP has done business in Russia for three decades.
The Russian ruble crashed more than 20% Monday as the country's citizens reportedly began to line up at ATM machines to withdraw cash.
Russia's central bank responded by raising a pivotal interest rate to 20% from 9.5%. The Bank of Russia has also moved to limit foreign sales of securities by brokers, reports The Wall Street Journal.
By Brian Sozzi · Anchor, Editor-at-Large
