The Ukrainian economy has been nosediving as a result of the war with pro-Russian separatists and Russian troops (who, according to the Kremlin official line, have popped in for a quick vacation invasion on their personal time). But the Russian economy isn’t far behind. The ruble has hit a record low compared to the U.S. dollar and the Euro, the FT reports:
Nato’s warning that Russia has “well over 1,000 troops” inside Ukraine raised fears of a big escalation of the crisis, and left the rouble exposed.The currency weakened 0.4 per cent on Friday, with as many as Rbs37.0280 required to buy a single dollar. The fresh slide took the rouble’s loss over the week to 2.6 per cent against the US currency. Against the euro the rouble fell 0.3 per cent to Rbs48.61.
Russia’s ban on importing Western food is only making things worse, and the runaway inflation has pushed the economy to the brink of a serious recession. Bloomberg explains:
The chance of Russia’s economy tipping into a recession is rising as the escalating crisis in Ukraine raises the risk of the government in Moscow retaliating with further import bans, according to a survey of analysts.The probability of a recession in the next 12 months rose to 65 percent from 50 percent, the highest since the first such Bloomberg survey in June 2012, according to the median estimate of 26 economists in the poll. Russia will enact additional restrictions in retribution for sanctions imposed by the U.S. and the European Union, according to 15 of 25 economists. Of those, 12 expect Russia to target cars and consumer goods.The standoff with the U.S. and its allies over Ukraine is capsizing Russia’s $2 trillion economy. The ruble weakened, inflation accelerated and capital flight quickened as the two sides exchanged salvos of sanctions. After the U.S. and the EU blacklisted some Russian individuals and businesses, President Vladimir Putin this month banned imports of some food products.
Western leaders have been trumpeting the severity of their sanctions against Putin, though as the reports of the Russian army in Ukraine show, those measures haven’t been as strong of a deterrent as they might have hoped. In the long term, however, as the Russian people suffer from an increasingly weak economy, Putin will feel the strain.