Ukraine crisis could hit Russian GDP

The Russian economy may achieve zero growth this year because of the Ukraine crisis, the Russian finance minister Anton Siluanov said.

The minister warned that the country's economy faced "the most difficult conditions since the 2008 crisis."

He said Russia had already witnessed capital flight of $63 billion in the first three months of 2014. Russia's annexation of Crimea is also set to increase state spending.

"GDP growth is estimated to be rather low, 0.5%. Perhaps it will be around zero," Siluanov told a government meeting.

He said that money was being syphoned out of the country because of geopolitical instability - understood to mean Russia's involvement in the Ukraine crisis and increased pressure on eastern Ukraine.

The capital flight, according to Siluanov, was the result of the mass conversion of roubles into foreign currencies.

The continued slowdown in growth has also been linked to dependence on energy exports and an economy in need of modernisation. "Continuing capital flight lowers the opportunities for economic investment and creates risk of an unbalanced budget.

The main reason for capital flight is instability in the way the geopolitical situation develops," said Siluanov.

Over the past three years, Russia has experienced economic growth fall from 4.3% in 2011 to 1.3% in 2013.

Prime Minister Dmitry Medvedev recently told the people of Crimea that the government would be increasing salaries and pensions, in addition to injecting extra money into the peninsula's infrastructure, following its recent controversial annexation.

Siluanov warned Medvedev not to spend too much in the region, "without analysing the real needs of Crimea and Sevastopol".

Medvedev described the Ukraine crisis as 'artificial' and said it was only partly responsible for the economy's bleak outlook.

"We of course cannot ignore the political elements of the current period," he said. "To an extent, our difficulties - I emphasise are tied to attempts of certain forces to push us into an artificial crisis."

With pro-Russia forces occupying buildings in cities across eastern Ukraine, and the central government threatening to retake control by force, tension continues to build in the region.

US Treasury Secretary Jacob Lew recently urged other countries to contribute more to the economic rescue of Ukraine.

- BBC