IMF cuts Russia growth forecast over Ukraine crisis

Agence France-Presse
In its World Economic Outlook report, the IMF cuts its GDP growth forecast for this year for Russia to 1.3% from 1.9% following Moscow's takeover of Crimea

RUSSIAN SANCTIONS. The IMF cuts its growth forecast for Russia following Moscow's takeover of Crimea. File photo by Yuri Kochetkov/EPA

MOSCOW, Russia – The International Monetary Fund on Tuesday, April 8 cut its growth forecast for Russia following Moscow’s takeover of Crimea and warned the Ukrainian crisis could have much wider global knock-on effects.

The Ukraine crisis and the ensuing diplomatic confrontation between Moscow and Western powers deepened Ukraine’s long-running recession and prompted major capital outflows from Russia after Washington slapped targeted sanctions against Moscow.

In its World Economic Outlook report, the IMF cut its GDP growth forecast for this year for Russia to 1.3% from 1.9%, blaming “emerging market financial turbulence and geopolitical tensions relating to Ukraine… on the back of already weak activity.”

Russia’s deputy economy minister Andrei Klepach predicted last week that growth could fall short of 1% this year, while the World Bank late last month gave a worse-case scenario of the Russian economy contracting by 1.8% in 2014.

The IMF said Ukraine’s output would “likely drop significantly as the acute economic and political shocks take their toll on investment and consumption.”

“The main effect is clearly on Ukraine first,” chief Fund economist Olivier Blanchard told reporters.

The crisis has already negatively affected Russia’s investment climate, Blanchard said.

“(There is) more hesitation on the part of investors to put their money in Russia, to leave it in Russia, so one can expect fairly substantial capital outflows.”

Russia’s Central Bank said Tuesday that capital outflows had reached $50.6 billion in the first 3 months of the year, compared with $59.7 for the whole of 2013.

Vedomosti business daily reported that account holders at Sberbank, the country’s largest bank, withdrew almost 1.5 billion euros in March.

The Ukrainian crisis could have effects beyond the former Soviet Union, the IMF said.

“Greater spillovers to activity beyond neighbouring trading partners could emerge if further turmoil leads to a renewed bout of increased risk aversion in global financial markets, or from disruptions to trade and finance due to intensification of sanctions and counter-sanctions,” the Fund said.

“In particular, greater spillovers could emerge from major disruptions in production or the transportation of natural gas or crude oil, or, to a lesser extent, corn and wheat,” the Washington-based organization said.

Currently Western sanctions target some of Russian President Vladimir Putin’s top allies and the Bank Rossiya, a lender described as a “crony bank” for Russian elites.

Washington has pledged to target the broader Russian economy if the Kremlin intervenes in eastern Ukraine where pro-Moscow activists have over the past few days seized government buildings and vowed to vote on splitting from the ex-Soviet country.

Such measures could isolate entire sectors of the economy in Russia, the world’s leading oil producer, the largest supplier of gas to Europe and the world’s third largest exporter of grain.

On Saturday, German Chancellor Angela Merkel warned Russia of new economic sanctions if “the territorial integrity of Ukraine continues to be violated.” – Rappler.com

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