Russia’s economy will fail to grow at all in 2014 and inflation will reach a four-year high, a Reuters poll of economists showed yesterday, as Western sanctions over Ukraine bite.
Economists cut back their growth forecasts for Russia this year as the escalating Ukraine crisis prompted waves of Western sanctions and a massive outflow of capital that are both hurting Russian companies’ ability to raise finance.
The latest poll, the first since a ceasefire in Ukraine between government forces and separatist rebels, suggests the economic fall-out from the crisis for Russia is far from over.
“Geopolitical risks remain, as the situation in eastern Ukraine is far from a peaceful solution and any escalation could trigger additional sanctions,” said Vladimir Miklashevsky, Russia economist at Danske Bank.
Western governments are expected to keep existing sanctions in place for the foreseeable future to keep up pressure on Russia after it annexed Crimea earlier this year and gave support to pro-Russian separatists in eastern Ukraine. The current ceasefire in Ukraine remains highly fragile.
“De-escalation (of military action in Ukraine) only prevents the further tightening of sanctions, it’s not about removing the sanctions that have already been imposed. And those sanctions are painful,” said VTB Capital economist Vladimir Kolychev.
Without access to Western finance, Russian companies are being forced to cut back on investments to reduce their debts. At the same time, they are squeezed by high local interest rates as the central bank struggles to stabilise the sinking rouble.
“To reverse this situation, sanctions will either have to be lifted or the central bank will have to ease monetary policy significantly, and that is not in prospect before at least the middle of next year,” Kolychev said.
The last time economists anticipated zero or negative growth for Russia over a full year was in 2009, when the economy slumped in the wake of the global financial crisis.
The country’s economy only grew by 1.3% in 2013 and by 3.4% in 2012, already disappointing compared with growth of around 7% annually before the 2008-9 crisis.