Russia acknowledged the surging cost for its takeover of Crimea from Ukraine, with Prime Minister Dmitry Medvedev blaming the standoff and sanctions that followed for helping push the economy into its first recession since 2009.
The land grab, which prompted the U.S. and the European Union to levy penalties against Russia, exacted a price estimated at 1.5 percent of gross domestic product, or 25 billion euros ($27 billion) in 2014, and the toll is set to grow multifold this year, Medvedev told lawmakers at the lower house of parliament in Moscow. The economy contracted about 2 percent last quarter from a year earlier, he said.
“The unprecedented political and economic external pressure is the price for our position,” he said on Tuesday. “But everyone -- authorities and our society -- understood that we had no other way, whatever threats we may face.”
The economy of the world’s largest energy exporter is entering a recession after an almost 50 percent crash in oil prices and the ruble’s worst crisis since 1998. The sanctions curbed access to international financial markets and stoked capital outflows. Even with a tenuous cease-fire in Ukraine and stabilizing oil prices, the central bank predicts the economy will shrink as much as 4 percent this year.
“The losses from the restrictions that have been imposed are significant, let’s not hide that,” Medvedev said. “There’s practically not a single sector of the economy that hasn’t been affected by some of the political measures, ranging from the financial sphere and limits on access to foreign credit to the import of technologies.”
The absorption of the Black Sea peninsula in March 2014, which followed a disputed secessionist referendum facilitated by Russian troops, was the “only possible” choice, according to Medvedev. While conceding the damage done to the economy, Medvedev hailed the “restoration of historical justice,” comparing its significance for Russia with the fall of the Berlin Wall and Germany’s reunification and the handover of control over Hong Kong and Macau to China.
The ruble’s 46 percent devaluation against the dollar last year was part of the fallout as Russia found itself walled off from the global financial system, Medvedev said.
The currency, which has recouped some of its decline this year, is headed for its longest stretch of losses this year after the central bank curbed the supply of cheap dollars to banks after the funds were used to take advantage of the world’s best carry trade. The currency lost 0.8 percent to 53.7340 versus the dollar by 2:25 p.m. in Moscow. The dollar-denominated RTS Index of equities climbed 0.3 percent.
The economic downturn was “most acute” at the end of 2014 and the start of this year and the situation is now “stabilizing,” Medvedev said. The decline in GDP last quarter is the first since a contraction in 2009.
Russia wants the ruble’s exchange rate to be “predictable, so there’s no excessive weakening or appreciation,” Medvedev said.
The economy is gradually adjusting to a floating exchange rate and the budget deficit remains at a safe level, Medvedev said, adding that Russia isn’t facing the “toughest possible scenario.”
“There should be no illusions,” Medvedev said. “Today we face not only short-term crisis effects: if external pressure increases while oil prices remain at an extremely low level for a long time, we’ll have to develop in a different economic reality, which will test our strength in full.”