IMF says Russian economy already in recession

May 2,2014

 

MOSCOW (AP) — The International Monetary Fund estimates that Russia's economy has already entered recession as fears of broad economic sanctions weigh on the economy.

Russia's economy shrank 0.5 percent in the first quarter of the year compared with the previous three-month period and is expected to continue struggling, said the head of the IMF mission in Russia, Antonio Spilimbergo.

"If you understand by recession two quarters of negative economic growth then Russia is experiencing recession now," Spilimbergo told reporters.

Investors are worried that the U.S. and Europe will step up sanctions against Russia because of its policies in Ukraine. Russia annexed Ukraine's Crimean Peninsula last month and has been blamed for fomenting unrest in the country's Russian-speaking east.

As a result, investors pulled about $60 billion from Russia in the first quarter of the year — more than in all of 2013. The IMF expects the capital outflows at around $100 billion this year, Spilimbergo said.

While analysts keep cutting Russia's growth forecasts, the Kremlin denies it faces recession, insisting that the economy will pick up in the second quarter.

Last week, S&P quoted tensions in Ukraine and cut Russia's sovereign rating in the first rating downgrade in six years.

Russia's economy was already weakening last year, before the crisis in Ukraine blew up. It grew 1.3 percent then, its worst performance in the past 13 years with the exception of 2009, when the country suffered in the global downturn.

The United States and the European Union has levied two rounds of sanctions on Russia already but they mainly concerned Russian politicians, a handful of businessmen close to President Vladimir Putin and their companies, none of which are public.

Russian markets sighed with relief on Monday when Washington announced the sanctions: the MICEX benchmark and the ruble rallied on the news that they targeted only a close group of individuals and not the Russian economy as such.

Washington, however, insisted that it'd be prepared for tougher sanctions hurting Russia's economy if the Kremlin does not help to defuse the crisis in Ukraine.

The fear of sanctions "can be even more powerful than the sanctions themselves," said Spilimbergo. He added that they are seeing "a lot of evidence that investment is taking a hit" — in public companies, private companies as well as foreign companies."

NAUSHAD ALAM
PGDM 2nd Sem