(VOVworld) – The ruble devaluation and the risk of economic recession in Russia are direct results of the West’s financial sanctions on Russia. VOV analyzes the effects of the Russian economic recession on the global economy.

Russia's inflation was about 10% in 2014 and is expected to increase in 2015. (photo: cnn.com)

Before 2014 Russia’s economy saw no signs of recession. All indicators and criteria suggested a stable economy. Since June 2014 Russia’s economy has jittered because the global oil price halved due to the West’s sanctions on Russia over its Ukrainian involvement and OPEC’s decision to maintain its petroleum output. Russia’s sanctions against food imports from the West drove the consumer price index in Russia to 8% in the last months of 2014. Inflation was about 10% and is expected to increase in the first half of 2015.

Side effects of the West’s sanctions 

The West’s sanctions have negatively influenced Russia’s economy, but Russia is not the only country facing an economic downturn due to national currency devaluation. Several countries are experiencing economic difficulties in Central Asia and Eastern Europe. They have urgently intervened in the financial and monetary markets to maintain currency exchange rates despite Russia’s capital withdrawal. The EU banking system is worried because many of its member banks are big lenders to Russia. Belarus and Kazakhstan are the two most affected countries due to their economic and political ties with Russia. The three countries signed an agreement to form the Eurasian Economic Commission early last year. The European Bank for Reconstruction and Development (EBRD) said half of Belarus’ GDP is dependent on Russia’s economy through trade, remittance, and banking assets. Russia imports about 40% of Belarus’s export products.

Some smaller economies like Armenia, Uzbekistan, Georgia, and Moldova have suffered indirect effects. Economic downturn, job losses, and ruble devaluation have decreased remittances from overseas workers to their home countries.

Several EU economies also suffered losses after the EU subjected more Russian companies to economic sanctions. EU exports to Russia fell 19% in January, equivalent to 2 billion USD.

Impacts on global order management

Highlights of the global order management after World War II were the establishment of the UN Security Council and the International Monetary Fund to manage political, financial, and monetary issues. Russia joined the IMF in 1992 and has a seat in the Directorate. Russia is one of the 5 permanent members of the UN Security Council, a member of the G8, and a member of the G20. The G8 has suspended Russia’s membership and the G20 downgraded Russia’s status to “observer” at the recent summit in Australia. The global order has been changing and Russia is losing its position. These are direct effects of the West’s sanctions on Russia.

The main reason for the sanctions – the Ukrainian crisis – has not been resolved, but tit-for-tat sanctions are hurting Russia, EU countries, and the global economy.