In 2013 the Russian economy grew by just 1,3%, a direct consequence of a weak trend in consumption and investments, accompanied by an equally weak performance of exports. Partly as a result of the Ukrainian crisis, this process continues in 2014, with GDP increasing by 1,1% in the first half of the year, due to the drop in investments. The first consequences are already being felt in the Russian economy: the sanctions generate higher financing costs for businesses and households, a higher capital outflow and puts pressure on the ruble, leading to higher inflation and reduced consumption. The demand for consumption and investment risks weakening further due to rising inflation, while exports in sectors not related to mining will be constrained by a weak external environment. While a timid rebound is expected in 2015, longer-term prospects are very limited, when the impact of the sanctions will be felt even more at the already reduced level of investments. So they become new investments in technology and the financial sector are of vital importance.
The collapse of confidence in the Russian economy is evident from the outflow of capital: 62 billion dollars in the first quarter of 2014 for a total of 87 billion in the first half of the year. That outflow affects the acquisition of foreign assets by banks (cash flow) and foreign currency deposits by firms. The capital outflow is expected to reach $100bn by the end of 2014, versus $65bn a year earlier. Capital outflows and increased economic uncertainty have led to increased currency volatility. In the past twelve months, the ruble has lost about 8% of its value against the euro and the dollar. As a result, Russia's central bank has repeatedly intervened to prop up the exchange rate, raising its key interest rate three times since February, from 5,5% to its current 8%.
The depreciation of the ruble has also aggravated the general price level: the inflation rate was 7,5% in July, with projections of 7% at the end of the year. Given the further moderate further depreciation in the second half of the year, inflation is expected to exceed 7% in 2014. However, the import ban recently imposed on EU food exports will further aggravate these trends, favoring local production with higher resource costs. With the consequent slowdown in the growth of private consumption to 0,4% at the end of the year.
