Russian economy suffering from ongoing conflict in Ukraine

May 7th, 2014 | By | Category: Central Bank

Vladimir Putin’s war against Ukraine is already showing signs of damaging the Russian economy, more about experts have warned.

Russia has witnessed a $50 billion capital flight in the first quarter of the year, page something the Kyiv Post is attributing to the political and military efforts over the Crimea crisis. Furthermore, as western democracies begin to impose sanctions over Russia, the economic problem is being exacerbated.

The plight of the rouble is reflected in the fact that the International Monetary Fund recently revised its growth forecast for Russia’s economy down from 1.3 per cent to just 0.2 per cent, the Daily Forex reported. The country’s military invasion of Ukraine in March combined with its ongoing and outspoken support of separatists in Crimea has seen investors withdraw interest from Russia.

One such example is the American global bond group Franklin Templeton Foundation which reduced its Russian portfolio by $200 million as conflict between Russia and Ukraine escalated.

It has also been revealed that inflation reached 6.9 per cent at the end of the first quarter, which is said to be hurting Putin’s populist policies.

In an attempt to defend the weakening rouble, the Russian Central Bank lost $30 billion of its reserves this year, leaving it at $483 billion by the middle of April. In total the rouble has lost eight per cent of its value against the dollar this year while Russia’s stock market has fallen by 13.5 per cent in the same period.

While Russia has fared better than many nations through the recession, and is still in a relatively strong financial position, the latest figures clearly indicate that its involvement in Ukraine is both cutting into its financial reserves while also hampering trade and overseas investment.

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