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Russian economy to come to standstill due to Ukraine crisis, sanctions — EBRD

September 18, 2014, 12:46 UTC+3 LONDON

Cumulative net private capital outflow from Russia reached $75 billion in the first six months of the year

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LONDON, September 18. /ITAR-TASS/. The European Bank for Reconstruction and Development said the growth outlook in eastern Europe has weakened further amid the continuing Ukraine crisis.

According to the central scenario, the growth in the transition region will slow to 1.3% in 2014, from 2.3% last year. A modest pickup to 1.7% is expected next year, although the “volatile security situation in Ukraine makes the forecast exceptionally uncertain.”

The bank said Russia’s economy growth is expected “to come to a standstill, after a slightly better than expected, though still weak, first half of the year, as new economic sanctions are impacting the already weak economy.”

Capital outflows from Russia continued in the second quarter of 2014, but at a “significantly slower pace than in the first quarter,” the bank said.

Cumulative net private capital outflow from Russia reached $75 billion in the first six months of the year, EBRD said.

Anti-Russian sanctions' impact on the economy

“Western sanctions, combined with uncertainty about their possible escalation in the future, have negatively affected business confidence in Russia, constrained the ability of corporates and banks to access international debt markets, and contributed to capital flight,” the report says.

Russia’s potential ban on transcontinental flights as part of the response to new Western sanctions may cost the Aeroflot flagship carrier an annual $300 million in revenues while European airlines may have to face cost increases of “several hundred million dollars.”

Since March, the United States and the European Union have imposed several rounds of sanctions against Moscow over its stance on the conflict in Ukraine.Moscow has responded by introducing a one-year ban on imports of selected foods from sanctioning countries (the EU, US and several others).

In mid-September, Brussels introduced further sanctions, for the first time targeting directly the financing of the state-owned oil sector, which is crucial to the Russian economy. Washington similarly strengthened its sanctions, adding Russia’s Gazprom, Europe’s leading energy provider, to the list of targeted companies.

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