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World Bank: Crimean Standoff Could Shrink Russian Economy

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A cashier counts a pension payment in Russian roubles, in a post office at the Crimean city of Simferopol, March 25, 2014.

A cashier counts a pension payment in Russian roubles, in a post office at the Crimean city of Simferopol, March 25, 2014.

The World Bank has concluded that Russia's already weak economy could markedly shrink this year if Moscow's standoff with the West over its annexation of Crimea intensifies.

In a new report Wednesday, the World Bank said the Russian economy could contract 1.8 percent in 2014 and investors could pull a record $150 billion out of the country.

The Washington-based international lender said a "lingering confidence problem" over Russia's economy is now "a crisis of confidence" that has "clearly exposed" its weakness.

The World Bank said it assumes that "political risks will be prominent in the short-term" in the aftermath of the initial economic sanctions imposed by the United States and the European Union against key Russian lawmakers and advisers linked to President Vladimir Putin. The West has threatened to impose stiffer sanctions if Russia advances farther into Ukraine after taking control of its Crimean peninsula and claiming it as part of Russia.

The World Bank said if the Russia-Ukraine standoff escalates, "uncertainty could rise around sanctions from the West and Russia's response to them." It said an increase in political tensions "would further depress confidence and investment activities."

The report said that no matter how the Crimean dispute plays out, there is a risk Russia "will be put back into a crisis mode" to handle its economy.

The World Bank called its projection for a 1.8 percent contraction a "high-risk scenario." But it said that even if the effect of the standoff over Crimea is short-lived, Moscow's economy would only expand by 1.1 percent this year, half what it projected in December.

Russia has estimated that investors have withdrawn $70 billion from the country in the first three month of the year, compared with $63 billion for all of last year. In its bleakest assessments, the World Bank said that $150 billion could be taken out of Russia this year and $80 billion in 2015.

Some information for this report was provided by AP, AFP and Reuters.
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