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.
Reuters
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

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

China to Open Stock Markets to Pension Funds

In unprecedented move, government to soon allow local pension funds to invest up to $94 billion in domestic shares More

Magical Photo Slides Show Native Americans in Late 1800s

Walter McClintock spent 20 years photographing the Blackfoot Indians and their vanishing culture at the dawn of the modern age More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs