Financial News

  • 1 May 2014, 6:17

IMF: Ukraine Crisis Sparks Russia 'Recession'

The International Monetary Fund (IMF) has warned Russia is already in recession as a result of the effects of the crisis in Ukraine.

An economist working for the organisation, Antonio Spilimbergo, made the comment while confirming a huge downgrade in the IMF's growth forecast for 2014 from 1.3% to just 0.2%.

It had predicted the higher growth figure for Russia just three weeks ago.

The move was a response to heightened concerns over the effects of a flight in capital from Russia - expected by the IMF to top $100bn in 2014 alone.

A tightening of sanctions against Russian individuals and firms close to Russian president Vladimir Putin, imposed by the West in response to his annexation of Crimea from Ukraine, was also cited as a core reason for the downgrade.

The tensions surrounding the crisis in Ukraine have pushed relations between Russia and the West to their lowest since the end of the Cold War, sparking a wider flight from risk on world markets.

As the IMF amended its forecasts, Ukraine's acting leader warned his country's forces were on full combat alert in case of a Russia invasion.

Mr Spilimbergo was quoted by the Interfax news agency as saying: "If we define recession as negative growth in two quarters in a row, then Russia from that point of view is experiencing recession.

"This all has a very negative effect on the investment climate. We expect that the fall in investments that already took place in 2013 will increase further this year."

Russia's economy contracted by about 0.5% in the first three months of the year compared with the previous quarter.

Standard and Poor's ratings agency on Friday downgraded Russia's ability to repay debt to BBB-, one notch above junk status, and retained its negative outlook.

Mr Spilimbergo, who acts as the IMF's mission chief to Moscow, agreed there were "considerable downside risks" and said the decision by Russia's central bank to raise interest rates last week would reduce inflation but would not be enough.

He argued the depreciation in the rouble over the past few months would put pressure on inflation and forecast consumer prices would rise more than 6% during the course of 2014.

 

 

 

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