Russia to raise forecast despite sanctions

Shrugging off the threat of additional Western economic sanctions, Russian officials have indicated the 2014 growth forecast is likely to be doubled.

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“We are moving at a level of about one per cent annual growth in GDP … and are likely to stay there until the end of the year,” senior Kremlin adviser Andrei Belousov was quoted on Wednesday as saying by Russian news agencies.

Russia’s current 2014 growth forecast of 0.5 per cent is set to be updated, and Economy Minister Alexei Ulyukayev said at a separate news conference that at this point “we’re talking about an increase to the forecast”.

Earlier this month, officials said the Russian economy, which was buffeted by market uncertainty surrounding Moscow’s annexation of Crimea and the outbreak of a violent pro-Russian separatist movement in eastern Ukraine, escaped entering a technical recession in the second quarter of this year.

Officials said they expected data to show the Russian economy remained flat in April through June, after having contracted by 0.3 per cent in the first quarter.

The European Union and United States imposed in April only limited sanctions on Russia that target individuals and businesses.

This hit sentiment and sparked massive capital flight, which then prompted the government to lower the growth forecast after the Russian economy recorded 1.3 per cent growth last year.

However, the tensions calmed and recent industrial production data has been encouraging.

“The current sanctions will not have a macroeconomic effect, it is a problem for specific companies,” said Belousov.

But both the European Union and the United States are moving towards imposing sanctions on entire economic sectors, which some analysts see as likely by September unless the Ukraine crisis is resolved.

Analysts at London-based Capital Economics warned that the widespread presumption that Russia will prove resilient in the face of any additional sanctions could prove complacent.

“Even if the direct impact of sanctions is limited, the indirect impact can be significant,” Chief Emerging Markets Economist Neil Shearing said in a recent research note, adding the sanctions could spark another increase in the flow out of the country and deter a rise in both foreign and domestic investment.