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Sanctions over Ukraine are taking toll on Russian economy

Russia's economy was faltering before its actions in neighboring Ukraine, but experts say the turmoil over Ukraine is scaring away international investors.
Russia's economy was faltering before its act... 01:53

The West has imposed economic sanctions against Russia for its seizure of Ukraine's Crimean Peninsula. The question is: Do these sanctions have any bite?

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Even before Russia massed troops on the Ukrainian border, its economy was faltering.

"The existing sanctions are starting to chip away at the economic welfare of Russian elites and Russian companies," said Alex Kliment, who heads Russia research at the Eurasia Group.

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Kliment says the turmoil over Ukraineis scaring away international investors.

"Attracting fresh money is becoming more difficult for Russian companies

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and Russian banks," he said.

Russia's economy actually shrank in the first three months of the year by half a percent.

This week Russia's economic minister, Alexei Ulyukayev, called it "a very worrying situation."

"The most worrying thing," he said, speaking in Russian, "is the capital flight."

Foreign and Russian companies are sending cash out of the country to safe havens. Some $64 billion fled in the first three months of this year. That is more than the $63 billion that left Russia in all of 2013.

"Broader sanctions could absolutely tilt Russia into recession," Kliment said.

"I think at the moment the prospect of broader sanctions against the Russian economy is one of the things that is restraining the Kremlin's willingness to actually invade eastern Ukraine," he said.

For now, Kliment says, President Vladimir Putin's popularity at home is soaring on a wave of nationalistic fervor.

"But underneath that is a real risk that this economic weakness can to start to hollow out that support very quickly," said Kliment.

The West hoped that a first wave of sanctions would serve as a warning shot, forcing Putin to consider that the price for taking control of Ukraine may be an economic crisis in Russia.

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