IMF cuts Russia growth forecast over Ukraine crisis

8th April 2014, Comments 0 comments

The International Monetary Fund on Tuesday cut its growth forecast for Russia following Moscow's takeover of Crimea and warned the Ukrainian crisis could have much wider global knock-on effects.

The Ukraine crisis and the ensuing diplomatic confrontation between Moscow and Western powers have already plunged Ukraine into a deep recession and prompted major capital outflows from Russia after Washington slapped targeted sanctions against Moscow.

In its World Economic Outlook report, IMF cut its GDP growth forecast for this year for Russia to 1.3 percent from 1.9 percent, blaming "emerging market financial turbulence and geopolitical tensions relating to Ukraine... on the back of already weak activity."

The IMF said Ukraine's output would "likely drop significantly as the acute economic and political shocks take their toll on investment and consumption."

The Ukrainian crisis could have effects beyond the former Soviet Union, it said.

"Greater spillovers to activity beyond neighboring trading partners could emerge if further turmoil leads to a renewed bout of increased risk aversion in global financial markets, or from disruptions to trade and finance due to intensification of sanctions and countersanctions," the Fund said.

"In particular, greater spillovers could emerge from major disruptions in production or the transportation of natural gas or crude oil, or, to a lesser extent, corn and wheat," the Washington-based organisation said.

Currently Western sanctions target some of Russian President Vladimir Putin's top allies and the Bank Rossiya, a lender described as a "crony bank" for Russian elites.

Washington has pledged to target the broader Russian economy if the Kremlin intervenes in eastern Ukraine where pro-Moscow activists have over the past few days seized government buildings and vowed to vote on splitting from the ex-Soviet country.

Such measures could isolate entire sectors of the economy in Russia, the world's leading oil producer, the largest supplier of gas to Europe and the world's third largest exporter of grain.

On Saturday, German Chancellor Angela Merkel warned Russia of new economic sanctions if "the territorial integrity of Ukraine continues to be violated."

© 2014 AFP

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