* Minister says Q2 growth was flat from Q1
* Capital flight slows but already more than in 2013
* Government officials see continuing problems
* Russia faces threat of more sanctions
(Adds quotes, Putin, details)
By Lidia Kelly
MOSCOW, July 9 Russia's economy is stagnating as
data showed on Wednesday that capital worth $75 billion has left
the country so far this year following sanctions on Moscow over
its involvement in Ukraine.
"We have for now a period of stagnation, or a pause in
growth," Deputy Economy Minister Andrei Klepach was quoted as
saying in an interview where he also said that GDP was flat from
April to June after shrinking 0.5 percent in the first quarter.
Klepach, speaking to Interfax news agency, noted that the
second-quarter figure of zero growth over the three months,
previously unpublished, indicated that Russia had avoided a
"technical recession" - two successive quarters of GDP decline.
But central bank data on capital flight showed investors are
concerned about the state of the $2 trillion a year economy.
Though the outflow slowed in the second quarter, the $75 billion
that left in the six months to June already surpassed the $62.7
billion capital flight seen for the whole of last year.
Despite a new commitment by President Vladimir Putin to
avoid international isolation, Russia faces a threat of new
sanctions over its role in the Ukraine crisis and growing signs
that its economy is wilting under those already in place.
Deputy Finance Minister Sergei Storchak said on Tuesday
that sanctions were having a "serious indirect impact" and
warned of retaliation against further measures by the West.
The United States and the European Union have imposed visa
bans and asset freezes on some companies and officials over
Russia's annexation of Crimea from Ukraine, following the
overthrow of a president in Kiev who was sympathetic to Moscow.
"We will never pursue isolationism. We will always be part
of the international community," Putin said during a meeting in
the Kremlin, signalling a desire to avoid more sanctions. He
also called for better ties with the EU.
But Washington and Brussels have held out the possibility of
more sanctions if pro-Russian separatist fighters do not wind
down the conflict in eastern Ukraine.
The rouble has recovered in recent weeks to the levels of
before the Ukraine crisis but the economy, heavily dependent on
energy exports, is expected to hardly grow this year despite oil
prices remaining highly supportive of the budget.
Recent central bank figures show Russians have been ditching
the rouble for foreign currencies this year at the fastest rate
in more than four years.
Former Finance Minister Alexei Kudrin has said that even
without further Western punishment over Ukraine, sanctions may
trim 1 to 1.5 percentage point off economic growth this year.
DAMAGE FROM SELF-SANCTIONS
Some economists say a recent slight revival in industrial
output and growth data, as well as a rally in Russian shares,
does not mean the damage has been avoided to an economy that was
already stuttering before the problems in Ukraine.
"The real damage to the economy is potentially much more
serious and comes from the voluntary self-sanctions taken by
foreign investors, credit providers and some foreign companies
active in Russia," Chris Weafer, a partner of Macro-Advisory, a
consulting firm in Moscow, said in a note published by the
European Leadership Network.
"While not compelled legally to restrict activities in
Russia it is clear that many investors and big international
companies have suspended new deals in Russia and have cut risk
The central bank has said about $90 billion of capital could
leave Russia this year. The World Bank and the International
Monetary Fund have said capital flight may exceed $100 billion
this year if the Ukraine crisis continues.
The IMF warned in a report earlier this month of the
"chilling effect" from sanctions on investment that could force
Moscow into economic isolation.
The Economy Ministry said recently it may revise upwards its
0.5-percent GDP growth forecast for this year.
The IMF kept its estimates unchanged at 0.2 percent earlier
this month, saying it is too early to assume an improvement.
Alexander Morozov, chief economist for Russia at HSBC in
Moscow, said that the recent GDP data concealed an underlying
downward trend in the Russian economy.
"The ... spike in geopolitical tensions with the
Russia-Ukraine standoff will likely have long-lasting negative
effects on private fixed investment growth in Russia," Morozov
"This will hamper Russia's economic recovery in 2014-15."
(Additional reporting by Denis Dyomkin Editing by Timothy
Heritage and Alastair Macdonald)