Tags: Russia | economy

Russia's Economy Slammed By Capital Flight, Negative Growth

By    |   Friday, 09 May 2014 11:51 AM

The European Central Bank says capital flight from Russia since the start of the Ukraine crisis  may be four times higher than admitted by the Kremlin –  a sign that sanctions are doing serious damage to Russia’s economy, the Daily Telegraph reported.

Bank President Mario Draghi said outflows from Russia have been estimated at an amount equal to $222 billion. The Russian finance minister claimed the number was no more than $51 billion during the first quarter, although that number has likely increased somewhat since then.

“Draghi’s figure is a huge amount. If this is correct, it shows that Russia is in much more trouble than people think,” said Tim Ash of Standard Bank, who said it was the same scale of capital outflow “we saw in late 2008 after the Lehman crisis.

Chris Weafer, a financial analyst at Macro Advisory in Moscow, said the financial damage to Russia in recent weeks may have been enough to push President Vladimir Putin into taking a softer line towards Ukraine.

Although Putin has eased his tone – pledging to withdraw Russian troops from the border with Ukraine – NATO sees no evidence that the redeployment has occurred.

“Putin has largely achieved his objective … . He doesn’t want to destroy the Russian domestic economy any further, so he is now playing nice,” Weafer said.

According to Weafer, there is a substantial amount of anecdotal information indicating that capital outflows from Russia have been very large.

European firms operating in Russia “have been reducing risk and transferring cash across the possible sanctions line,” he said. “Russian companies have been setting up bank accounts abroad so they can still do business if the big Russian banks are hit with sanctions.”

The International Monetary Fund last month lowered its 2014 growth forecast for Russia to 0.2 percent – down substantially from the 1.3 percent predicted before the Ukraine crisis unfolded. Anthony Spilimbergo, the top IMF economist monitoring Russia, last week attributed that nation’s worsening outlook in part to “the significant level of uncertainty related to geopolitical tensions and sanctions.”

The sanctions and the mounting violence have “a very negative effect on the investment climate,” Spilimbergo said. IMF officials said the Russian economy, now mired in recession, shrank by 0.5 percent during the first quarter of this year.

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The European Central Bank says capital flight from Russia since the start of the Ukraine crisis may be four times higher than admitted by the Kremlin.
Russia, economy
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2014-51-09
Friday, 09 May 2014 11:51 AM
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