Russia Capital Rush Extends to $13 Billion Last Quarter

Russia’s capital outflow extended for the 17th consecutive quarter amid economic sanctions from the U.S. and the European Union, bringing this year’s redemptions to about $85 billion.

Net private capital outflows were $13 billion from July through September, according to a central bank estimate published today. That compares with $48.6 billion in the first quarter and $23.7 billion in the prior three months.

Russia’s economy, teetering on the brink of its second recession since 2009, is losing capital as sanctions weigh on business sentiment. Investor confidence suffered as international measures against Russia were escalated in July over its role in the Ukraine crisis while the downing of Malaysia Airlines flight MH17 stirred anger against the increasingly isolated country. Russia has denied involvement in the conflict and in the crash which killed all 298 people aboard.

“We don’t think that the fact that capital outflows slowed a little in the third quarter is a sign of improvement ahead,” Liza Ermolenko, an economist at London-based Capital Economics Ltd., said by e-mail. “The key point is that capital continues to flee Russia, and a quarterly outflow of $13 billion is still very substantial.”

The ruble posted its worst quarter in more than five years between July and September, data compiled by Bloomberg show. The currency slipped 0.2 percent against the central bank’s target basket of dollars and euros at 45.0073 as of 11:11 p.m. in Moscow.

Slowing Exports

Given the retreat in the ruble against the backdrop of an improving trade balance, capital outflows may have accelerated at the start of the fourth quarter, Ermolenko said.

The current account, the broadest measure of a country’s trade in goods and services with the world, showed a surplus of $11.4 billion in the third quarter, down from $14.1 billion in the second quarter and beating an estimate of $8.8 billion among economists. The central bank refrained from intervening to stem the ruble’s decline during the third quarter since the previous intervention on May 8 brought the total spent this year to $40 billion.

The main reason for the outflow’s decline is the seasonal compression of the current account as less money coming to Russia from exports means “less money slipping away,” Oleg Kouzmin, an economist at Renaissance Capital Ltd. in Moscow, said by e-mail. “With less cash coming through current account and no cash coming from the CBR reserves, the economy doesn’t have other sources to increase capital flight.”

Russia’s economy is poised for its slowest growth since a recession in 2009 while the ruble extends the world’s worst decline in the past three months.

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