News / Europe

Russian Admits Economy in Crisis as Ukraine Weighs

An employee changes rates on a notice board at a currency exchange in Simferopol, March 17, 2014.
An employee changes rates on a notice board at a currency exchange in Simferopol, March 17, 2014.
Russia's government acknowledged for the first time on Monday that the economy was in crisis, undermining earlier attempts by  officials to suggest albeit weakening growth could weather sanctions over Ukraine.
Moscow markets wait to see the full scale of western measures over the seizure of Ukraine's Crimea and support of its referendum to join Russia, after losing billions of dollars in recent weeks in state and corporate money.
For weeks, Russian officials have said the confrontation between Moscow and the West over Ukraine that threatens economic sanctions and asset freezes would “weigh on the economy”.
Although not speaking directly about the impact from the conflict, Deputy Economy Minister Sergei Belyakov said on Monday the economy was in trouble.
“The economic situation shows clear signs of a crisis,” Belyakov told a local business conference.
European officials have said they are determined to hit Russia for its actions in Crimea, imposing sanctions including travel bans and asset freezes on those responsible. The United States is expected to take similar steps on Monday .
“People are most afraid of sanctions. Their volume and .. what sanctions there will be and how this will be reflected on the Russian financial system, the economy, the markets and the largest companies,” said Konstantin Chernyshev, head or research at Uralsib in Moscow.
Many economists expect Russia to enter recession and most have rushed to slash their growth forecasts as a result of the worst showdown between Russia and the West since the fall of the Berlin Wall.
“Domestic demand is set to halt on the uncertainty shock and tighter financial conditions, likely dipping the economy into a recession over second and third quarter of 2014,” Vladimir Kolychev and Daria Isakova, economists are VTB Capital wrote in a note on Monday.
“We are lowering our full-year growth outlook to 0.0 percent, and see downside risks if uncertainty remains elevated for a protracted period and/or severe sanctions are imposed.”
The Economy Ministry's most recent estimates, issued before the escalation of the Ukrainian crisis, envisage the economy expanding by around 2 percent this year.
Hefty price for political whims
Economist have warned ever since President Vladimir Putin declared on March 3 a right to invade Ukraine to defend the Russian-speaking population that the price Moscow will pay for its decisions will be hefty.
The rouble-denominated MICEX index has lost more than $66 billion in market capitalisation and the central bank has spent more than $16 billion of its reserves to defend the rouble.  Only last week, MICEX lost 7.6 percent and the dollar-denominated RTS more than 8 percent.
In a matter of a few weeks Russia has gone from being perceived as one of the more resilient emerging markets to the withdrawal of the United States monetary stimulus to one of the most vulnerable developing countries, analysts said.
“Russia's economy was struggling even before the recent rise in geopolitical tensions surrounding Ukraine and some softer economic data from China,” said Alexander Morozov, chief Russia economist at HSBC in Moscow. “Possible economic and financial sanctions on Russia add to the uncertainties.”
President Vladimir Putin has said Russia will respect the decision of the peninsula's people and the country's two houses of parliament said they would work as quickly as possible to pass legislation for its accession.
Putin is due to address the parliament on Tuesday in what is broadly expected to be an official recognition of Crimea's appeal to include the region into Russian territory.
Capital has been fleeing Russia in billions since the start of the year. Former Finance Minister Alexei Kudrin and a series of economists see capital flight at $50 billion in the first quarter, compared to $63 billion seen in the whole of 2013.
The rouble is down 11 percent against the dollar this year , continuously breaking through all-time lows.
The Russian central bank vowed on Friday to provide for financial stability after the standoff with the West over Crimea, after unexpectedly raising key rates by 150 basis points in early March to stem capital flight.
The bank, in possession of the world's third-largest stash of gold and foreign reserves, which stand at $494 billion, has some room for maneuver. But if the tensions in Ukraine escalate, the bank may burn through the reserves quickly.
“It has become patently clear over the last several days that the Crimean peninsula is the prelude to wider and much more dangerous geo-political tensions over the fate of the Ukrainian mainland,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London said in a note.

You May Like

US, China Have Dueling Definitions of Cybersecurity

Analysts say attribution or or proving that a particular individual or government is responsible for a hack, is a daunting task More

Snowden: I'd Go to Prison to Return to US

Former NSA contractor says he has not received a formal plea-deal offer from US officials, who consider him to be a traitor More

Goodbye Pocahontas: Photos Reveal Today's Real Native Americans

Weary of stereotypes, photographer Matika Wilbur is determined to reshape the public's perception of her people More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs