Russian Economy Hit the Skids Before Sanctions Even in Place

By Dan Weil

GDP-Industrial-ProductionRussia’s economy is tanking, even as the West’s sanctions for its takeover of Crimea have just begun to bite.

The country faces stagflation and plunges in the ruble and stock market. That has helped send foreign investors running for the hills, taking billions of dollars out of the country with them. Recession appears to be looming, New York Times columnist David Herszenhorn writes.

“This is our fee of sorts for conducting an independent foreign policy,” Aleksei Kudrin, a former Russian finance minister, said at a recent investor conference in Moscow, according to Herszenhorn.

Kudrin said Russia’s adventurism in Ukraine would ultimately strip hundreds of billions of dollars from the economy and put the kibosh on economic growth through year-end.

“Even before the Crimean episode, and the resulting imposition of sanctions by the West, Russia’s $2 trillion economy was suffering from stagflation, that toxic mix of stagnant growth and high inflation typically accompanied by a spike in unemployment,” Herszenhorn explains.

The International Monetary Fund (IMF) forecasts that Russia’s GDP will expand only 1.3 percent this year, matching last year’s total and down from the IMF’s 2 percent estimate in January. Russian inflation hit 6.9 percent in March, the highest in nine months.

“The near-term growth outlook for Russia, already weakened, has been further affected by these geopolitical tensions,” the IMF said in its World Economy Review, according to Bloomberg.

The report was referring to the situation in Ukraine, of course. Concern remains that Russia will invade the eastern part of that country.

Meanwhile, if oil prices fall, the Russian economy will suffer greatly, given its huge dependence on oil and natural gas.

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