Russia warns capital flight may push growth below 1.0%

The Russian economy will fall far short of 1.0-percent growth this year if tensions driving capital out of the country continue, Deputy Economy Minister Andrei Klepatch said on Thursday. Speaking amid deep strains over the Ukraine crisis, he was quoted by Russian news agencies as saying "we can have growth substantially below 1.0 percent if we take into account trends in place now." The crisis over Russia taking control of Crimea and raising pressure on Ukraine has weakened the ruble, slowed investment sharply and ramped up the flow of capital out of the country. These factors are expected to result in the economy, which was already flagging, growing by far less than Russian authorities had forecasted. The economy ministry had counted on growth this year being 2.5 percent after 1.3 percent last year but is expected to revise this down in the next few days. The World Bank has estimated that if the crisis over Ukraine worsened, the outflow of capital could total $150 billion (109 million euros) this year and cause the economy to shrink by up to 1.8 percent. Klepatch said that the economy should grow by 0.8 percent in the first quarter on a 12-month comparison, ruling out the risk of a recession in the first half of the year, although the official figures have not yet been published. He said that the economy was still highly dependent on external factors, although less so than previously. "We have good foreign reserves, that is to say we are better prepared for fluctuations of exchange rates and other setbacks," he said. "But we observe a very big level of dependence of our economy  -- rate of growth of the private and banking sectors -- not only on world prices for oil but also regarding the situation arising from capital flight," said Klepatch. But concerning the level of debt by businesses and banks in terms of gross domestic product, the country is less dependent than in 2008, he noted. On Wednesday, Russia's central bank chief also warned that economic growth was likely to slow to less than one percent in 2014, lowering aprevious forecast. "Currently we believe that realising our prognosis on growth in 2014 that we presented last year is hardly probable," Central Bank chief Elvira Nabiullina said, Russian agencies reported.