Before the Global Financial Crisis struck in 2008, all the talk was of the emergence of new economic superpowers, the BRICS group: Brazil, Russia, India, China and South Africa. Undoubtedly, in time, these economies will strengthen and attract capital, but with the exception (arguably) of China, all have been hard hit by the downturn in global trade.
Russia faces a fresh crisis of its own making which may further delay its full economic emergence in its decision to annex the Crimea. Although the decision to join Russia was taken following a loaded referendum which asked citizens if they wished to join Russia or have greater autonomy in Ukraine, the move has been heavily criticised in the West and has triggered a limited set of sanctions and other moves. Russia was due to host a G8 meeting later in the year, but other members of the group have cancelled it and Russia has been effectively ejected from the group.
The Russians are anticipating that investors will withdraw at least $70 billion worth of assets in the first quarter of the year. This exodus would be exacerbated if tensions over Ukraine escalate, or if the West put in place biting sanctions. To add to their woes, Russia’s deputy Economy Minister, Andrei Klepach is predicting Q1 growth to come in flat and has noted that growth is stagnant and inflation rising. To put the asset exodus in context, the figure is above the $63 billion draw-down that Russia experienced for the full year in 2013.
The Russian economy grew by 1.3% last year, but against the back-drop of economic stagnation, significant economic sanctions against Russia would risk triggering a recession as they begin to bite. Western powers have been outraged at what they see as a Russian take-over of part of another sovereign nation.