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IMF Cuts Russian GDP Forecast as Cabinet Warns on Growth

The International Monetary Fund cut its forecast for Russia’s economy, citing the standoff with the U.S. and Europe over Ukraine, as the government in Moscow warned this year’s growth may slow to the least since a 2009 recession.

Gross domestic product will expand 1.3 percent in 2014, the same as last year and down from a 2 percent prediction made in January, the Washington-based IMF said today. The IMF is more optimistic than the Economy Ministry, which said later that GDP will grow 1.1 percent in its base case scenario, or as low as 0.5 percent under its pessimistic outlook.

In an interview with Bloomberg Television today, IMF chief economist Olivier Blanchard said the fund’s forecast for Russia was compiled before the Crimea takeover was “fully in play.” He said the IMF may further reduce its 2014 growth projection, possibly to less than 1 percent.

President Vladimir Putin’s move to absorb Crimea last month prompted U.S. and European Union sanctions and triggered the worst standoff since the Cold War. Russian Economy Minister Alexei Ulyukayev has warned of a possible recession this year if capital outflows reach $150 billion. Russian stocks are the worst performers in 2014 globally, falling more than 10 percent.

The ruble has lost 7.9 percent against the dollar this year, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg after the Argentinian peso. The dollar-denominated RTS Index has declined 17.1 percent, compared with a 0.9 percent advance for the MSCI Emerging Market Index.

‘Geopolitical Tensions’

The IMF said the conflict in Ukraine is spurring capital flight from Russia and weakening the ruble.

“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.

Russia’s Deputy Economy Minister Andrey Klepach, who said in February that GDP growth may reach 2 percent this year, today cited worsening sales of natural gas in the European Union and Ukraine as his ministry released its more pessimistic 2014 outlook.

“We aren’t considering shock scenarios connected to sanctions,” Klepach told reporters in Moscow. “It’s not sanctions, it’s a hypothesis about a certain limiting of demand for our hydrocarbons.”

An expansion in sanctions against Russia, which to date include visa bans and asset freezes on individuals and a bank, would risk stoking capital flight to as much as $150 billion this year, Klepach said. Outflows from the $2 trillion economy reached $63 billion in 2013.

Price Outlook

Inflation will slow to 5.8 percent this year, the IMF forecast. Price growth accelerated to 6.9 percent from a year earlier in March, driven by currency depreciation.

While the central bank plans to stabilize inflation by the second half of the year, there’s a high risk of missing policy makers’ 5 percent goal, central bank Chairman Elvira Nabiullina said April 2. Consumer prices will slow to 5.3 percent in 2015, when economic growth will quicken to 2.3 percent, the IMF predicted.

The former Soviet region remains under threat, according to the fund.

“The balance of risks remains to the downside, considering rising geopolitical uncertainties following the takeover of Crimea,” the IMF said. “Intensification of sanctions and countersanctions could affect trade flows and financial assets.”

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