World Economy

Russia Economy Shrinking as Sanctions Bite

Russia Economy Shrinking as Sanctions BiteRussia Economy Shrinking as Sanctions Bite

Russian Prime Minister Dmitry Medvedev said on April 21 that the country’s economy has lost an estimated 25 billion euros as a result of western sanctions and that the losses could be “several times” higher this year.

In his annual report to parliament on the economy, Medvedev said Russia’s gross domestic product dropped by about 2 percent in the first quarter of 2015. That drop, if confirmed, would be Russia’s first quarterly contraction since the deep recession of 2009, RadioFreeEurope reported.

Medvedev’s assessment of Russia’s economic situation was starker and more frank than upbeat comments from President Vladimir Putin, who told the nation on April 16 that the economy was “over the worst.”

Medvedev said Russia’s losses from sanctions imposed by the European Union, the United States, and other countries over Moscow’s interference in Ukraine have been “significant -- we won’t hide it,” and could get worse.

“For the first time in the history of Russia after the collapse of the USSR ...our country has turned out to be under the influence of two external shocks – a sharp drop in oil prices and unprecedentedly harsh sanctions pressure,” he said. “We’ve never faced such an array of simultaneous challenges.”

 Economic Pain

Medvedev suggested the economic pain Russia is experiencing is the price the nation paid for its annexation of Crimea from Ukraine in March 2014, an act that triggered western sanctions. More have been added as a result of a conflict between Russian-backed separatists and government forces that has killed more than 6,100 people in eastern Ukraine since April 2014.

The decision to annex Crimea was “the only one possible, and we all...supported it, knowing the possible consequences,” Medvedev said. “Clearly, the economic consequences of ‘the Crimea decision’ would be milder if our economy had not already accumulated a number of internal problems with which we did not have the time to deal.”

While Medvedev said the economy is “stabilizing,” he warned that it could get worse “if external pressure strengthens and oil prices remain at an extremely low level for a long time.”

Russia would have to adjust to “a different economic reality” if the situation worsens, he said.

The World Bank on April 1 predicted that Russia’s economy would experience a deep recession this year, contracting by 3.8 percent, as a result of the oil price slump and increasingly strict sanctions that have only begun to take effect.