Russia Sees Stiffer Sanctions Bring GDP Growth to a Halt

Russia’s economic expansion will slow to a crawl if stiffer penalties are put in place over the conflict in Ukraine, according to the Finance Ministry.

An escalation of tensions may bring growth to 0.2 percent to 0.3 percent this year, the ministry in Moscow said today in a draft of its three-year budget strategy. The government currently predicts the economy will expand 0.5 percent this year after 1.3 percent growth in 2013, the slowest since 2009.

“In the longer term, sanctions can undermine budget sustainability,” the ministry said. Still, “Russia has enough reserves to offset a large part of possible economic damages in the short and medium term.”

The European Union and the U.S. are considering further penalties after imposing asset freezes and travel bans on scores of Russian officials and businesspeople close to President Vladimir Putin or linked to unrest in Ukraine. Measures targeting entire industries may undermine their financial stability, worsen borrowing conditions and spark capital outflows, according to the Finance Ministry. That would also weaken the ruble, fan inflation and hurt consumer confidence, it said.

Russia also faces possible risks that include disruptions of gas transit through Ukraine and trade sanctions by EU member states, the ministry said.

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