Russia experiencing recession now, says IMF

image copyrightAFP
image captionThe Ukraine crisis is threatening investment in Russia, the IMF said

Russia is "experiencing recession now" because of damage caused by the Ukraine crisis, the International Monetary Fund (IMF) has said.

The fund, which cut its growth forecast for Russia, said $100bn (£59bn) would leave the country this year.

Antonio Spilimbergo, the IMF's mission chief in Moscow, said international sanctions were damaging the economy and threatening investment.

Russia's economy contracted in the first three months of this year.

But Mr Spilimbergo said he expected that to continue.

"If you understand by recession two quarters of negative economic growth, then Russia is experiencing recession now," he added.

"The difficult situation and especially the uncertainty surrounding the geopolitical situation... and escalation of sanctions are weighing very negatively on the investment climate."

The IMF cut its 2014 growth forecast for Russia to 0.2% from 1.3% and said it expected the country's economy to grow by only 1% next year.

Credit ratings agency Standard & Poor's has already cut Russia's rating to one notch above "junk" status.

And last week Russia's central bank raised its key interest rate from 7% to 7.5% in an effort to defend the value of the rouble, which has lost more than 8% against the dollar so far this year.

Investor flight

Mr Spilimbergo said the interest rate rise would reduce the rate of inflation, but that it would not be enough to prevent consumer prices rising more than 6% in 2014.

Russia itself has expressed concerns about investors moving money out of the country amid tensions and sanctions over its intervention in Ukraine.

Its central bank said $64bn had left the country in the first quarter of the year - more than the capital outflows registered for the whole of 2013.

The investor flight has partly been prompted by US and EU sanctions targeting a number of Russian companies and high-profile business figures, including those close to President Vladimir Putin.

The Russian government has retaliated with a warning that the sanctions could be damaging for Western energy firms.

US Treasury Secretary Jack Lew has said the sanctions have so far caused "a quite substantial deterioration in Russia's already weak economy".

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