Russia’s economy has adapted to Western sanctions better than had been expected so far, but maintaining macroeconomic stability is now becoming more challenging and depends in large part on the outlook for energy exports and the extent to which additional resources are diverted to the war effort in Ukraine. Our baseline view is that the deterioration in Russia’s external and fiscal positions will be manageable this year and next. But there’s now a growing possibility that Russia's economy follows a path towards more significant macroeconomic instability, including a smaller current account surplus, larger budget pressures and higher inflation and interest rates.
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