It is Difficult to Say So Far Whether the Russian Economy Faces a Serious Recession

On the threshold of the referendum in Crimea on Friday, stock market indices in Russia kept falling. Having started with a 2%–2.5% drop, two hours later after the beginning of the trading session they lost over 5%. The weighted average USD exchange rate at the unified trading session appreciated by 18.25 kopeks and amounted to Rb 36.639.
It is not the fact of Crimea's possible joining to Russia that affects the ruble exchange rate, but a threat of Western sanctions against Russia and a capital flight. It is to be noted that the effect of the capital outflow on the ruble exchange rate will be more dramatic that the sanctions alone. The outflow of capital will be substantial in terms of demand on and supply of the foreign currency. With taking into account the panic on the market, depreciation of the ruble will be a dramatic one.

However, things are not that bad. If future, the balance will return to normal provided that high oil prices prevail. If the capital flight stops, the opposite trend will start, that is, appreciation of the ruble.

With taking into account both the panic on financial markets and maintaining by the Central Bank of Russia of high interest rates, it is early to say whether the Russian economy faces a substantial recession. However, it is already clear that the economy will hardly achieve the expected indices by the end of the year. Maybe, there will be zero growth or an insignificant slump. However, it is to be repeated that nothing can be said definitely until the panic subsides.

Alexei Vedev, Head of the Structural Research Center