Treasury's Yellen says Russia's war has weakened its economy 'for years to come'

Key Points
  • Treasury Secretary Janet Yellen said Russia's economy is projected to contract "this year and the next" due to historic sanctions.
  • Russia's GDP is expected to contract by 6.2% this year and 4.1% in 2023.
  • The Russian military has had to rely on Iran and North Korea for military gear amid the sanctions, Yellen noted.
International Monetary Fund (IMF) Managing Director Kristalina Georgieva (L) and US Treasury Secretary Janet Yellen meet at the Treasury Department in Washington, DC, on July 1, 2021.
Nicholas Kamm | AFP | Getty Images

Treasury Secretary Janet Yellen says Russia's war against Ukraine has weakened its economy and slowed the nation's growth prospects for the foreseeable future.

"The Russian economy is projected to contract this year and the next," Yellen said Thursday before a meeting with European economic officials at the International Monetary Fund and the World Bank annual meeting in Washington, D.C.

Historic sanctions imposed by the U.S., the European Union and allies against Russia for its unprovoked invasion of Ukraine have cut the nation off from Western capital markets with the larger goal of depriving Russian President Vladimir Putin of the revenue he needs to finance the war, Yellen said.

"Lost investment, including hundreds of private sector companies that have left the country and are unlikely to return, and constraints on Russia's real economy will create a drag on Russia's growth prospects for years to come," she said in remarks released by the department.

The Treasury secretary hosted a meeting with Valdis Dombrovskis, European Commission executive vice president and trade commissioner, and Paolo Gentiloni, the European commissioner for the economy.

Russia's gross domestic product is expected to contract 6.2% this year and 4.1% in 2023, according to the Economist Intelligence Unit. The projections are "huge by both historical and international standards," Agathe Demarais, the unit's global forecasting director told CNBC in September.

The EIU also said a European boycott of Russian oil will further deplete the economy. The energy sector makes up about a third of the Russia's GDP, including half of all fiscal revenues and 60% of exports, CNBC reported.

Yellen and Deputy Treasury Secretary Wally Adeyemo are promoting the G-7's strategic price cap on Russian oil at the IMF meetings this week as an effective method to deny the Kremlin the income to continue its war against Ukraine.

Sanctions have also effectively rendered Russia dependent on "suppliers of last resort like Iran and North Korea for basic military gear," according to Yellen.

"At the same time, we have provided record amounts of both military and economic assistance to Ukraine," she added "We are seeing on the battlefield the military edge this growing disparity is creating."