Russia Slips into Recession, Ruble Falls 9.4% as Ukraine Crisis Hits $2tn Economy

Russia’s economy is showing signs of a crisis, the government in Moscow said as the U.S. and the European Union announced sanctions over the country’s support for the Crimea region breaking away from Ukraine.

Even before the worst standoff against the West since the Cold War, Russia’s economy was facing the weakest growth since a 2009 recession as consumer demand failed to make up for sagging investment. EU foreign ministers agreed to freeze assets and impose visa travel bans on 21 Russian, Crimean and former Ukrainian officials, while U.S. President Barack Obama imposed sanctions on seven Russians.

The Ukrainian crisis is putting a strain on Russia’s $2 trillion economy, which grew 1.3 percent in 2013 after expanding 3.4 percent previous year. The Economy Ministry projects growth will average 2.5 percent a year through 2030.

Ruble Drops

The ruble has weakened 9.4 percent against the dollar this year, more than any other of the 175 currencies except the Argentine peso, the Ukrainian hryvnia, the Kazakh tenge, Zambian kwacha and the Kyrgyz som.

The currency’s slide, exacerbated by the intensifying tensions over Ukraine and the threat of sanctions, forced the central bank to look past sluggish growth and tighten monetary policy. Bank Rossii lifted its benchmark interest rate to 7 percent from 5.5 percent at an emergency meeting March 3.

Inflation, GDP

Consumer-price growth accelerated to 6.2 percent in February from a year earlier from 6.1 percent in January. Bank Rossii wants to keep inflation within 5 percent this year after missing its target range of 5 percent to 6 percent in 2013.

Capital outflow from Russia may reach $70 billion in the first quarter and there is “a real risk that this could push Russia into recession,” London-based Capital Economics said in a report published on 16 March.