Russian Growth Slowest Since 2009 on Sanctions, Poll Says

Russia’s first-quarter economic growth was probably the slowest since a 2009 recession as the country’s standoff against the U.S. and its allies over Ukraine shrivels up investment, a survey of economists showed.

Gross domestic product advanced 0.7 percent in January-March from a year earlier after a 2 percent gain in the previous quarter, according to the median estimate of 19 economists in a Bloomberg survey. The Economy Ministry projects that output expanded 0.8 percent in the period. The Federal Statistics Service in Moscow may report its first estimate today.

The U.S. and the European Union responded to President Vladimir Putin’s takeover of Crimea from Ukraine with sanctions and warned they are ready to take further measures if the former Soviet republic’s May 25 presidential election is disrupted. The $2 trillion economy was stalling even before the penalties hit. The International Monetary Fund said April 30 that Russia is already in recession.

“The main driver for the slowdown is the contraction of investment,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow, said by e-mail. “Investment weakness is due to a combination of much higher borrowing costs and the deterioration of the political and economic outlook. The latter is at least partly due to rising sanction risk from the West.”

Capital outflow rose to $50.6 billion in the first quarter from $27.5 billion a year earlier, according to the central bank.

Ruble, Stocks

The ruble has weakened more than 5 percent this year against the dollar, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg after Argentina’s peso. The benchmark Micex Index of stocks has declined 7.6 percent in the same period, compared with a 3 percent increase for the MSCI Emerging Markets Index.

The threat of sanctions is more “dangerous” for the economy than the effects of actual measures because it dries up investment, Economy Minister Alexei Ulyukayev said May 13.

“Obviously, the role of this factor is big as we had a 4.2 percent drop in fixed-capital investment in the first quarter,” Ulyukayev said.

Russia may face technical recession, defined as two consecutive quarters of declining output compared with the previous three-month period. The economy is at risk of failing to grow or may even contract 0.1 percent in April-June compared with January-March, when GDP fell 0.5 percent, Ulyukayev said. The statistics office won’t publish quarterly figures this week.

Above Target

The central bank is struggling to boost growth by easing monetary policy as the ruble weakens and inflation remains faster than the rate policy makers target. Consumer-price growth in April reached 7.3 percent from a year earlier, compared with the central bank’s 5 percent target in 2014.

Policy makers unexpectedly raised their benchmark rate by 50 basis points to 7.5 percent on April 25. The move followed what the central bank called a temporary increase in March by 150 basis points from 5.5 percent after Putin secured parliamentary approval to deploy troops in Ukraine to protect Russian speakers and those of Russia heritage.

“Economic growth will be about zero by the end of the year, it may even fall in some quarters in annual terms,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Bank Eurasia ZAO in Moscow, said by e-mail. “Investment will continue to fall and the decline may intensify, while consumption will slow down after temporary stability in the first quarter.”

To contact the reporter on this story: Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky

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