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Russian economy on brink of recession as tougher sanctions loom

Russian economy on brink of recession as tougher sanctions loom
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Even before its standoff with the West, some analysts were predicting Russia would fall into recession.

But now banks, including state run VTB Capital, say EU and US sanctions imposed for Moscow’s incorporation of Crimea, are likely to tip it over the edge.

VTB expects the Russian economy to shrink for at least two quarters as penalties bite.

Latest figures also suggest a slowdown. Russia’s main stock index has dropped by around 12 percent since the start of the year. The rouble is the world’s second worst performer against the dollar. While capital flight, which has risen recently, is expected to rocket because of the crisis.

The uncertainty that tougher sanctions could follow is also impacting on investor confidence.

Russian analyst Yaroslav Podseva said: “The situation is very negative for our economy because nobody knows what sanctions may follow. While sanctions are isolated, the reaction is moderately negative. This is very bad for the equity market because investors have a rather long memory. If they leave, they usually tend not to come back.”

Credit rating agency Standard and Poor’s has also recently revised its outlook for the Russian economy as negative.

For the moment, sanctions remain targeted at a select elite, but the consequences in the mid to long-term may also be felt by ordinary Russians.