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Ukraine tension hurts Russian economy

Wednesday, April 16, 2014 - 02:07

Apr 16 - The Russian economy shrank in the first three months of this year, and Russian money has fled abroad due to the Ukraine crisis. As Joanna Partridge reports, Russia is looking to spend at home rather than abroad due to geopolitical risks.

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No let up in tension in Ukraine. Armoured troop carriers arrived in the eastern town of Slaviansk - flying the Russian flag. A situation already closely-watched by Moscow and the West is now impacting on Russia's growth. Economy Minister had a worrying message for parliament - Russian money has fled abroad, and national output shrank by 0.5% in the first quarter of the year. SOUNDBITE: RUSSIAN ECONOMY MINISTER ALEXEI ULYUKAYEV, SAYING (Russian): "We also have a high level of uncertainty in the global financial markets, serious capital flight, the situation when investors are not ready to make investment decisions in the tense international situation we've had for the past two months. The economic situation is not stable." Alexei Ulyukayev also urged Moscow to put more of its oil wealth into building infrastructure at home instead of investing in euros and dollars. Russian stocks and the rouble remain under pressure. And that could influence President Putin's decisions, says Christian Schulz from Berenberg Bank. SOUNDBITE: Christian Schulz, Senior Economist, Berenberg Bank, saying (English): "The economic weakness shows that Russia can't afford a war and also Russia cannot afford a prolonged trade war with the West and certainly can't stop exporting gas to the EU so that weakens Russia's position significantly." But it's not just events in Crimea and Ukraine which are hurting the economy. Russia really needs reform, says Dominic Johnson from Somerset Capital Management. SOUNDBITE: Dominic Johnson, Chief Executive, Somerset Capital Management, saying (English): "Putin originally started off as a great reformist president, trying to reduce corruption, increase the rule of law, increase entrepreneurship and so on, and then as time went on unfortunately that whole message became deeply corrupted. It's very difficult to invest in Russia now because you're fighting against such a high level of local and sort of state-orientated corruption, among other issues. So what they really need to do is free up their enterprise markets, reinstate truly the rule of law and try and encourage entrepreneurship." Investors will be hoping for positive signals on Thursday. Russia, Ukraine, the EU and the U.S. are meeting to look for solutions to the crisis.

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Ukraine tension hurts Russian economy

Wednesday, April 16, 2014 - 02:07