Russian Economy Could Contract 1.8%

Economy Could Contract by 1.8% in 2014, World Bank Says.

Highlighting the potential impact of Western pressure on Moscow, the World Bank on Wednesday warned that further escalation of the crisis in Ukraine would likely push Russia’s economy into contraction this year and trigger a huge surge in capital flight.

A top Russian official, meanwhile, said the government began developing a backup plan to minimize the economic impact of sanctions even before the crisis began, but said the details of the strategy remain confidential.

The official, First Deputy Prime Minister Igor Shuvalov, conceded that even without further official sanctions, Russia could find itself effectively frozen out of Western investment and capital markets. Even so, he said Russia won’t “slam the door” on its traditional export markets in Europe as a result of the crisis.

Russia’s annexation of the breakaway Ukrainian region of Crimea this month sparked one of the worst East-West crises since the end of the Cold War and triggered U.S. and European sanctions on senior Russian officials.

Russian officials say the capital outflow in the first quarter could reach $70 billion—more than in all of 2013—but argue that the economy isn’t in recession, though it has all but stopped growing.

The World Bank said that if the crisis escalates further, with the West imposing more sanctions and foreign banks and investors continuing to flee, Russia’s economy would likely contract 1.8% this year, its worst performance since the global financial crisis in 2009.

The bank estimated the capital outflow would reach $133 billion in that case, even without broad trade sanctions on Russia, something Western officials say would be a last resort.

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