Russian economy slows as Ukraine crisis bites

MOSCOW (AFP) ― Russia’s economy ministry warned on Monday that growth slowed in the third quarter and could contract in the fourth as the fallout from the Ukraine crisis takes a further toll on the economy.

Growth has slipped slightly to 0.7 percent in the third quarter from 0.8 percent in the second quarter, Oleg Zasov, the head of forecasting at the ministry said.

“We are expecting to see a small contraction in the fourth quarter,” Zasov was quoted by Russian news agencies as saying, adding that an overall growth rate of 0.5 percent was still “attainable.”

Official data from the ministry has yet to be released.

Russia’s economic performance has been in steady decline in recent years, falling to 1.1 percent in 2013 from 3.4 percent in 2012.

The recent slowdown has been compounded by the fallout from the crisis in Ukraine as the EU and U.S. have imposed the harshest sanctions on Moscow since the end of the Cold War over its backing for separatist rebels.

The spillover from the crisis has caused the ruble to fall sharply against both the euro and the dollar this year as major companies have been cut off from key debt markets with some $55 billion in loans set to come due in December.

On Monday, the ruble slipped to new all-time lows against the euro and dollar, to about 42.3 to the dollar and 53.63 to the euro.

Zasov also said that a slide in the value of the ruble this year has added about 1.5 to 2.0 percentage points to inflation which has now risen to more than 8 percent.

He said the ministry would likely increase its inflation forecast for 2014 from the current 7.5 percent.

Russia’s central bank has spent about $16 billion of foreign currency on propping up the ruble since the start of October, according to local media, with officials admitting that they can do little more than ease its slide.

Capital flight has spiraled and is set to top about $100 billion for the year according to the International Monetary Fund.

The economic turmoil has been compounded by the slump in oil prices to around $85 per barrel as Russia remains heavily reliant on energy revenues.

That level is well beneath the $100 per barrel mark, the price which Russia needs to shore up its public finances.

Last week Russia’s finance ministry said officials might have to draw up a “back-up” budget for 2015-17.