Russian economy to grow 0.5pc amid political turmoil
The Russian economy is likely to grow by around 0.5pc this year but the overall threat to stability from the crisis in Ukraine would not be "large scale", central bank governor Elvira Nabiullina said.
The Bank of Russia will probably revise its 2014 gross domestic product growth forecast to around 0.5pc, Ms Nabiullina said, revealing that it had earlier forecast a 0.9pc expansion.
The economy is on the brink of recession after quarterly GDP fell by 0.5pc in the first three months of the year, impacted by sanctions and instability resulting from the stand-off with Ukraine and wider emerging market uncertainty.
Ms Nabiullina said it was too early to speak of a recession, before full macroeconomic data for the second quarter was out, but she acknowledged that the economy had been affected.
The central bank's earlier GDP growth forecast of 0.9pc had not been public, which indicates two downward revisions have been made by the central bank since Russia engaged in Ukraine and annexed the Crimean Black Sea Peninsula.
In February, the central bank had predicted the economy would grow by 1.5pc-1.8pc in 2014. For the next two years, the central bank sees growth of around 1.5-2pc.
The United States and the European Union have imposed sanctions on a number of businesses and officials considered close to President Vladimir Putin. Russian officials vary in their assessments of the impact on the country's economy, but former finance minister Alexei Kudrin said last week they may have cut GDP growth by 1pc to 1.5pc.
"Any argument about growth projections for this year is academic – there is no difference between zero growth, or 0.2pc or 0.5pc," Ms Nabiullina said.
Based on central bank data, capital flight in the first four months of the year reached about $68bn (€49.8bn), exceeding the total for all of last year.
The central bank increased rates twice between March and April – by a cumulative 200 basis points to 7.5pc – to stem the flow of funds and aid the rouble, but Ms Nabiullina said the impact of the sanctions had been limited.
She added that the most obvious impact has been seen in business and individuals rushing to exchange roubles into foreign currencies, weakening the currency and increasing inflationary pressures.
The rouble, which in March was down 10pc against the dollar compared to the start of the year, has since recovered and is trading at January levels.
But the impact from its weakening early this year would continue for some time, Ms Nabiullina said.
She expects annualised inflation of 7.5pc by the end of the first half of the year, before easing to around 6pc by the end of 2014. (Reuters)