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

Video Obama Announces Plan to Send 3,000 Troops to Liberia in Ebola Fight

At US Centers for Disease Control and Prevention, Obama details troop deployment and other pieces of US plan More

Video China Muslims Work to Change Perceptions After Knife Attacks

Muslims in Kunming say that they condemn the violence, it is not a reflection of the true beliefs of their faith More

Humanitarian Aid, Equipment Blocked in Cameroon

Move is seen as a developing supply crisis in West Africa More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Enviropreneur Seeks to Save the Environment, Empower the Communityi
X
September 16, 2014 2:06 PM
Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Americans' Reaction Mixed on Obama Strategy for Islamic State Militants

President Barack Obama’s televised speech on how the United States plans to “degrade and destroy” the group known as the Islamic State reached a prime-time audience of millions. And it came as Americans appear more willing to embrace a bolder, tougher approach to foreign policy. VOA producer Katherine Gypson and reporter Jeff Seldin have this report from Washington.
Video

Video Authorities Allege LA Fashion Industry-Cartel Ties

U.S. officials say they have broken up crime rings that funneled tens of millions of dollars from Mexican drug cartels through fashion businesses in Los Angeles. Mike O'Sullivan reports that authorities announced nine arrests, as 1,000 law enforcement agents fanned out through the city on Wednesday.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid