Russia in recession, IMF estimates
Published 30/04/2014 | 13:32
The International Monetary Fund estimates that Russia's economy has entered recession.
Last year, it grew 1.3%, its weakest rate in the past 13 years with the exception of 2009, when the country suffered in the global downturn.
The growth slowed further this year as investors pulled money out of Russia amid concerns over its policy in Ukraine.
The head of the IMF mission in Russia, Antonio Spilimbergo, said Russia is already in recession as fears of broad economic sanctions weigh on the economy.
A recession is commonly defined as two consecutive quarters of contraction. Russia's economy shrank, quarter on quarter, in the first three months of the year.
While analysts keep cutting Russia's forecasts, the Kremlin denies it faces recession.
"If you understand by recession two quarters of negative economic growth then Russia is experiencing recession now," Mr Spilimbergo said.
Investors are worried that the US and Europe will step up sanctions against Russia because of its policies in Ukraine.
As a result, investors pulled about 60 billion US dollars (£35 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 dollars (£59 billion) this year, Mr Spilimbergo said.
While analysts keep cutting Russia's growth forecasts, the Kremlin insists 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.
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 would 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 Mr Spilimbergo.
He added that experts are seeing "a lot of evidence that investment is taking a hit" in public and private companies as well as foreign companies.