International tensions dent Russia’s economy
In February Russia’s gross domestic product eked out growth of just 0.3% year-on-year, down from 0.7% in January, Russia’s deputy economy minister Andrei Klepach said.
Last year the economy grew by just 1.3%, far below initial forecasts, but there had been hopes growth would rebound this year. Instead Russia’s economic performance is deteriorating further as the international tensions around Ukraine lead capital to flee Russia.
Klepach said that when seasonal and calendar factors are taken into account, February’s 0.3% was “not bad” and “better than expected.”
But he added “it’s too soon to talk about a turn-around in economic trends, about a recovery from stagnation.”
He said that the ministry anticipates GDP growth of “around zero” for the first quarter as a whole. That would make its 2.5% growth forecast for 2014 challenging. “There won’t be a recession, but there is a problem of stagnation: it’s length and depth. Unfortunately the investment slump is continuing. I’m not ready to say how long it will continue,” Klepach said.”
While Russia’s economic growth slows, inflation is shooting up. The Economy Ministry expects inflation to reach 6.9%-7.0% in March, up from 6.2% in February.
The sharp rise illustrates how a slumping rouble is feeding into higher import prices, as Russians and foreigners scramble to get out of rouble investments.
Klepach said that the ministry forecasts the net capital outflow during the first quarter at $65-$70bn — and “closer to $70bn”.
That compares with an outflow of $62.7bn during the whole of 2013.
He said that Russia’s economic indicators have been deteriorating, even though western sanctions against Russia have so far had only a minor economic impact, because cool relations between Russia and the West damage investor confidence.
“Sanctions so far don’t have a significant economic character, but in itself a worsening of relations is a significantly negative factor for economic growth and correspondingly influences the capital outflow.”
