Russian officials have dramatically reduced growth forecasts for this year and acknowledged the annexation of Crimea will spur capital outflows and hurt investment, but they have not entirely ripped up the old script.
At an investment conference on Thursday, Russia's central bank head and finance and economy ministers were sanguine, boasting they had ways to protect the economy against the fallout from the worst East-West standoff since the Cold War.
Most would not have to be used, they said, and the crisis over Crimea eventually could help the economy become more self-sufficient, a message that matches President Vladimir Putin's longstanding drive to bring money home from abroad.
While sticking to a protocol agreed last week with Putin for all public comments to refer to economic and financial stability, however, Russia's three leading financial officials were clearly making preparations for the worst.
U.S. Officials Sanctioned by Russia
Senate Majority Leader Harry Reid
Senator John McCain
Senator Daniel Coats
Senator Robert Menendez
Senator Mary Landrieu
House Speaker John Boehner
Deputy National Security Advisor Caroline Atkinson
Presidential Aide Daniel Pfeiffer
Deputy National Security Advisor Ben Rhodes
Having already stopped referring to the official growth forecast for 2.5 percent this year, Economy Minister Alexei Ulyukayev said instead it could slow to 0.6-0.7 percent if capital flight reached $100 billion this year.
The Economy Ministry has estimated capital outflows of up to $70 billion in the first quarter alone.
“[With] an outflow of $150 billion, growth becomes negative,” he said, suggesting Russia could tumble into recession for the first time since the aftermath of the global financial crisis in 2008-09.
In the first estimate by a leading international body, the World Bank said on Wednesday Russia's economy could contract markedly this year and see record capital outflows of $150 billion if the crisis over Crimea deepens.
It said Russia's gross domestic product could shrink by 1.8 percent, hurt by uncertainty over future measures the West may take to punish Russia for annexing Crimea - a move criticized by Ukraine, the United States and the European Union as illegal.
Economists have also said Russia's economy would suffer badly if the price of oil, its main export item, were to fall.
A Reuters poll of analysts on Thursday showed that increasing supplies from North America and OPEC nations coupled with sluggish global demand will push oil prices lower in 2014, with further falls expected in 2015 and 2016.
Fears for Future
Russia's former finance minister, Alexei Kudrin, agreed, saying it was not the sanctions themselves that were damaging the economy but the expectation of more, possibly targeting trade or finance, and also how Moscow would retaliate.
“All this affects the amount of capital outflows and investments. The general atmosphere of uncertainty about Russian policy in these circumstances is also a deterrent,” he said.
“My forecast for economic growth is about zero, plus or minus 0.5 percent,” he said, pegging outflows at $150 billion to $160 billion.
He said this was what it cost to pursue an independent foreign policy and society was so far prepared to agree to such a cost.
“We are paying hundreds of billions of dollars for this, hundreds of billions, and we will see lower GDP growth, investment and revenues,” said Kudrin.
For now, most officials are at least publicly backing Putin's decision to pursue his strident foreign policy, forcing their financial colleagues to come up with ways to plug the gap.
Ulyukayev urged a loosening in budget funds to help spur investment, possibly from oil revenues.
Finance Minister Anton Siluanov said he was ready to offer companies the same emergency measures adopted during the 2008-2009 financial crisis when the government spent billions of dollars -- or about 8 percent of GDP -- bailing out Russia's major banks and companies.
He suggested using funds from the National Wealth Fund, a sovereign fund financed from oil taxes designed to support the pension system, which as of March 1, stood at $87.3 billion.
Central Bank Governor Elvira Nabiullina also promoted a plan to ease borrowing at home, pointing to three-year refinancing for banks secured by state-backed investment projects as a way of reducing reliance on Western finance.
For the time being, though, the overall message was relatively upbeat.
“We expect that one of the consequences of these recent events could be an increase in demand for credits inside the country, if access to lending abroad is reduced for companies and banks,” said Nabiullina.