By Andrei Skvarsky.
A Deutsche Börse analyst argues that Russia will plunge into recession if the West follows up its recent penalties against the country in retaliation for its annexation of Crimea with widespread trade and financial sanctions.
“Given that the economy grew by just 1.3% in 2013 and growth has pretty much ground to a halt in the first two months of the year, any negatives for the economy will be felt hard,” Philip Uglow, chief economist at Deutsche Börse-owned think tank MNI Indicators, has told EmergingMarkets.me in an emailed interview.
“On a scenario that sanctions are not extended then growth looks set to come in at around 1% in 2014 given the recent monetary tightening. Should more widespread trade and financial sanctions be introduced then Russia will be plunged into recession,” Uglow said.
However, “unless Russia makes further military incursions into Ukraine”, such sanctions are unlikely due to economic damage they would inflict on the countries that imposed them, he argued.
One of the effects of the sanctions that have gone ahead is a steep increase in capital outflow from Russia.
Uglow said around $70bn left Russia in the first quarter, and that anecdotal evidence suggests that some German companies are taking profits out of the country that were earmarked for investment.
Russian Economic Development Minister Alexei Ulyukayev, at a conference in Moscow last week, put the first quarter’s capital outflow at about $60bn and said this was roughly equivalent to the amount of capital that left Russia for the whole of last year.