Economy shrinks in Q1 in Russia

Russia's economy shrank by 0.5 percent in the first three months of 2014 from the previous quarter, a minister said on Wednesday, fuelling concerns the Ukraine crisis could tip it into recession. Economy Minister Alexei Ulyukayev said that Russia's economy grew just 0.8 percent in the first quarter of 2014, compared to activity in the same period last year. But it contracted 0.5 percent versus the final three months of 2013, after seasonal adjustment, Russian news agencies quoted Ulyukayev as telling parliament. A recession is defined as two consecutive quarters of shrinking economic output. Many analysts believe Russia will fall into recession owing to the impact of the Ukraine crisis. Ulyukayev did not specifically mention Ukraine, but admitted that the Russian economy was facing increased market uncertainty and capital flight because of the "international situation". "The economic situation has become even more strained and internal factors have been exacerbated by a high level of uncertainty on currency and financial markets, serious capital flight, an unreadiness by investors to take decisions in this acute international situation, which has taken shape in the last two months," he said. Finance Minister Anton Siluanov on Tuesday warned that Russia economy could be set back to zero growth this year as it faces "the most difficult conditions since the 2008 crisis," when it went into deep recession. Ulyukayev said that in his last report to parliament seven months ago he had acknowledged that Russia was facing its toughest conditions since 2009. "Over the past seven months nothing comforting happened and the situation in fact became even more tense than before," he added. He said that Russia was now experiencing a "pause in investment" with volumes down 4.8 percent in the first quarter from the same period a year earlier. "The latest economic data indicate that the tentative economic recovery at the end of last year started to fizzle out, even before the crisis in Ukraine escalated," said economists at Capital Economics in a note to clients. Net private sector outflows from Russia rose to $50.6 billion in the first quarter, the largest quarterly outflow since 2008, the analysts added. The outflow of capital has also pushed down Russia's ruble, which in turn has aggravated Russia's inflation problem. The headline rate rose to 6.9 percent last month, Capital Economics said.