Various signs point towards Russian economy possibly going into decline this year. The negative trends appeared long before Ukrainian crisis.

Last week, Russian economy ministry lowered its 2014 growth forecast from 2.5 percent to 0.5. According to the minister Aleksei Ulyukayev, the first quarter of 2014 underperformed quarter 4th of 2013 by 0.5 percent.

«We don’t think this forecast is conservative, it’s quite optimistic,» commented finance minister Anton Siluanov, adding that the economy might not grow at all in 2014.

Capital leaking

So both ministries agree that the growth outlook is bleak. That’s where the unity ends. How to fight the meagre economic growth, the views of the ministries totally differ.

Economy ministry is in favour of assuming loans, the state undertaking to stimulate the economy; also, they would like to hinder the capital outflow. The finance ministry thinks the opposite: debt levels are to be kept low; foreign currency reserves are to be preserved just in case the oil prices should unexpectedly fall. As of April 11th, Russia’s reserves stood at $477.7bn.

By now the greatest problem is «stagflation» i.e. slow economic growth coupled with rapid price rise. To fight inflation, in February Russian central bank raised its base interest rate from the 5.5 to 7 percent; this, however, serves to slow economic growth.

Partly, the lacklustre growth is caused by the events in Ukraine, which cost Russia a lot and speed the bleeding of capital.

According to initial central bank estimates, 1st quarter net capital outflow amounted to $50bn; economy ministry thin the sum was $63bn – which equals the total of 2013. According to the Swiss bank Credit Suisse, in March alone $33bn escaped Russia. According to predictions by Russian economy ministry, by end of the year $100bn may have fled the land.

«This is the price of our peculiar independent foreign policy,» Russia’s former finance minister Aleksei Kudrin told a recent investors’ conference in Moscow. Due to differences regarding budget policy, Mr Kudrin left the government in the fall of 2011. According to him, the Ukrainian crisis will cost Russia hundreds of billions of dollars, through sanctions.

Mr Kudrin predicted that the people have not yet received the final bill for the annexation of the geographically isolated Crimea.

«The society has not seen the end result yet, but it puts brakes on real income,» he said. «At the moment, the society is accepting the price.»