Russia’s sluggish economy is not a function of the Ukraine crisis or sanctions, but reflects long term economic trends

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Series Details 01.04.14
Publication Date 01/04/2014
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One of the underlying factors in the Ukraine crisis is the health of the Russian economy, including the impact that EU and US sanctions could potentially have in bringing about a change in policy.

EUObserver reported on the 9 April 2014, that the US and the European Union were preparing to strike at Russian banks, energy and minerals firms if Russia invaded mainland Ukraine.

Pekka Sutela writes that while Russia is currently experiencing sluggish economic growth, this has more to do with long-term structural weaknesses than the direct effects of the Ukraine crisis. He notes that a side effect of Russia’s economic decline is that Vladimir Putin’s popularity with Russian citizens is now based largely on foreign affairs and social conservatism, rather than the economic performance which underpinned his appeal during the 2000s.

According to several figures released on the 14 April 2014 by Sipri, a military spending research group, Russia spends more on arms compared to its GDP than the US and European countries.

On the 17 April 2014, the European Parliament defended that the EU should step up sanctions targeting individual Russians and be ready to impose economic sanctions on Russia immediately. They also called for EU measures against Russian firms and their subsidiaries, especially in the energy sector, and Russia's EU assets.

EurActiv reported on the 24 April 2014 that Russian steel group NLMK had threatened to halt production in western Europe if the EU decided to implement economic sanctions against Moscow.

International ratings agency Standard & Poor’s announced on the 25 April 2014 it had lowered Russia’s creditworthiness for the first time in five years. The analysts fear sanctions over the Ukraine crisis will lead to capital flight and risk investment.

The International Monetary Fund substantially lowered its growth forecast for Russia in 2014 due to the effects of the EU and US sanctions. Technically speaking, the country is already in recession, the lender said.

In a new sign of chilling relations between the EU and Russia, trade between the two blocs dropped considerably in the first quarter of 2014, while the EU trade deficit with Moscow slightly declined, according to Eurostat figures published on the 16 May 2014.

Russia's President Vladimir Putin arrived in Shanghai on the 20 May 2014 ahead of a summit at which Russia and China were hoping to deepen ties. The two countries agreed a gas contract estimated to be worth over $400 billion (€300bn) over 30 years. The contract with China's National Petroleum Corporation is comfortably the largest-ever negotiated by Russian state-owned energy giant Gazprom.

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Sputnik International: Tag: Western Sanctions Against Russia http://sputniknews.com/trend/western_sanctions_against_russia_2014/
World Bank: Countries: Russia http://www.worldbank.org/en/country/russia/overview
ESO: Key Source: Euromaidan - Protests in Ukraine 2013 - 2015 - Key source http://www.europeansources.info/record/euromaidan-protests-in-ukraine-2013-2015/
ESO: Background information: European Council, Brussels, 20-21 March 2014 http://www.europeansources.info/record/european-council-brussels-20-21-march-2014/
EUObserver, 09.04.14: US and EU prepare to strike Russian banks, energy firms http://euobserver.com/foreign/123797
BBC News, 15.04.14: Ukraine crisis could hit Russian GDP http://www.bbc.co.uk/news/business-27031630
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