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

Photogallery Early Nigeria Results Show Buhari Leading; Tampering Concerns Mount

One local group monitoring polls is concerned politicians might use security agencies to 'fiddle with the election collation process' at state level More

UN: 7,300 Civilians Killed in Boko Haram Insurgency

A senior UN humanitarian official tells the United Nations Security Council 1,000 people have been killed this year More

Turkish President Warns Iran About Trying to Dominate Middle East

Warning comes amid growing concerns inside Turkey that it will be sucked into a sectarian conflict with its neighbor More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Film Tells Story of Musicians in Mali Threatened by Jihadistsi
X
Greg Flakus
March 30, 2015 6:48 PM
At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video With Coalition Airstrikes, Iraq Entering 'Last Page' of IS Battle

American warplanes joined Iraq's battle against the so-called 'Islamic State' in northern Iraq late Wednesday, as Iraqi ground troops launched a massive assault on Tikrit. Analysts say the offensive could take the coalition a step further towards Mosul, the largest city held by Islamic State forces. Others say it could also deepen already-dangerous sectarian tensions in the region. VOA's Heather Murdock has more from Cairo.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Islamic State Prisoners Talk of Curiosity, God, Regret

Islamic State fighter, a prisoner of Kurdish YPG forces, asked his family asking for forgiveness: "I destroyed myself and I destroyed them along with me." The Syrian youth was one of two detainees who spoke to VOA’s Kurdish Service about the path they chose; their names have been changed and identifying details obscured. VOA's Zana Omer reports.
Video

Video Germanwings Findings Raise Issue of Psychological Testing for Pilots

More is being discovered about the co-pilot in the crash of Germanwings Flight 9525 in the French Alps. Investigators say he was hiding a medical condition, raising questions about the mental qualifications of pilots. VOA's Carolyn Presutti reports.
Video

Video Hi-tech Motorbike Helmet's Goal: Improve Road Safety

In cities with heavily congested traffic, people can get around much faster on a motorcycle than in a car. But a rider who is not sure of his route may have to stop to look at the map or consult a GPS. A Russian start-up company is working to make navigation easier for motorcyclists. Designers at Moscow-based LiveMap are developing a smart helmet with a built-in navigation system, head-mounted display and voice recognition. Zlatica Hoke has more.
Video

Video DOJ: Illinois National Guard Soldier Tried to Join ISIS

U.S. federal law enforcement agents arrested two suburban Chicago men accused of trying to join ISIS overseas, while also plotting attacks in the United States. As VOA’s Kane Farabaugh reports from the Midwest state of Illinois, one of those arrested is a soldier of the Illinois National Guard.
Video

Video New Wheelchair Is Easier to Use, Increases Mobility

Traditional push-rim wheelchairs create a lot of stress for arm, shoulder and neck muscles and joints. A redesigned chair, based on readily available bicycle technology, radically increases mobility while reducing the physical effort. VOA’s George Putic reports.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More