The International Monetary Fund says sanctions linked to the crisis in Ukraine could end up hurting Russia’s economy. The IMF says the sanctions could lead to a nine percent drop in Russia’s gross domestic product or GDP -- the value of all its goods and services.
The Russian economy shrank over the past year because of Western measures aimed at punishing Russia for its actions in Ukraine. Russian measures against the West also hurt the economy. In addition, low prices for oil exports increased pressure on the value of Russian money and the country’s finances.
Now, the Russian economy is showing signs of stabilization. The economy no longer appears to be as weak as it once was.
Last year, Western countries ordered restrictions that limited financing for major Russian banks and energy companies. The West also restricted high-technology exports to Russia’s energy industry. In reaction, the Russian government banned imports of most Western food products.
The International Monetary Fund estimated the immediate effect of sanctions and Russian actions against the West reduced Russia’s GDP by up to 1.5 percent. The IMF said its estimate rose to nine percent over the next few years. But IMF officials said their findings were based on economic models, and they could change.
The IMF also predicted “weak” economic growth of about 1.5 percent a year in Russia over the next few years. The economy was growing about seven percent a year before the world financial crisis in 2008.
The IMF said, “Slow-moving structural reforms, sluggish investment and adverse population dynamics are all part of the picture.” It urged Russia to reduce the involvement of the state in the economy, protect property rights and increase competition.
The IMF said Russia would return to economic growth next year as a weaker value for its money increased competitiveness and overseas demand increased. It also predicted that financial conditions in the country would normalize.
The Fund also predicted a growth rate of two-tenths of one percent next year following shrinkage of 3.4 percent this year.
Inflation was predicted to slow to about 12 percent by the end of this year and then eight percent by the end of next year.
The IMF praised the central bank’s policy of reducing its main interest rate in line with underlying inflation. But, it added that the rate of reductions needed to be “prudent.”
I'm Mario Ritter.
