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Russia facing recession due to economic sanctions

Sanctions imposed by the US and the EU are pushing Russia towards a recession as the intensity of their economic penalties increases after the annexation of Crimea earlier this month.

Russian banks, including state-run VTB Capital, say the world’s ninth-biggest economy will shrink for at least two quarters as penalties for annexing Crimea will curb investment and raise the cost of borrowing. Sanctions that have so far focused on individuals via visa bans and asset freezes may be expanded to target specific areas of the economy.

President Vladimir Putin sent his popularity surging to a five-year high by making Crimea a part of Russia again after 60 years and says he won’t be swayed by foreign retaliation. Even so, the costs of the decision are starting to unfold, with Russian stocks this year’s worst performers (down almost 15% this year at the time of writing) and the economy set to suffer more than the West. The Russian Ruble is also down 15% compared to the US dollar over the past 12 months.

Capital outflows from Russia are expected to total $70bn in Q1 this year, compared to $63bn for the whole of 2013.

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