Russia’s economy: On the edge of recession

SIGNS of Russia’s economic problems appeared long before the annexation of Crimea or the war in the Donbas region in Ukraine. The country’s previous growth model, in which profits from oil and gas sales were funnelled into the consumer economy, petered out around the time Vladimir Putin returned to the presidency in 2012. But Mr Putin in effect rejected a new model, based on innovation and investment, because of its troublesome political implications.This state-imposed stagnation is made much worse by the combined effect of the West’s sanctions, a lack of access to financing, capital flight and a climate of uncertainty, which is locking Russia into a sustained period of near-zero growth. The economic spillover of the Ukraine crisis reveals “the downside of state capitalism”, says Alexander Kliment of Eurasia Group, a think-tank. When things are going well, he says, the power of the market helps strengthen the state. But when the state starts to have problems with the outside world, the economy suffers—dramatically.Foreign firms such as Blackstone, a private-equity group, and Adobe, a software maker, are leaving Russia. The rouble continues to…

Link to article: www.economist.com/news/europe/21621877-wests-sanctions-are-hitting-contracting-economy-edge-recession?fsrc=rss|eur

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