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.