Russia may be heading toward a recession as sanctions imposed by the U.S., European Union and Canada over the country's annexation of Crimea intensify.
According to a report by Russian state-owned bank VTB Capital, the country's economy will shrink over the next two quarters as uncertainty hurts domestic spending, hits markets, and puts a damper on foreign investment.
They are lowering their outlook for economic growth in Russia to 0% for this year, and say the world's ninth largest economy could shrink further if sanctions worsen or uncertainty remains high.
On Friday, Russian President Vladimir Putin formally annexed Crimea, deepening the divide between his country and the European Union, which has stood behind Ukraine.
Since the crisis in Crimea began, Russian markets have borne some of the pain for Putin's Crimean ambitions.
Russia's Micex stock index has dropped 13.2% so far this year, compared to a 5.7% drop for the MSCI Emerging Market Index, which is a broad measure of market movement in emerging markets around the world.
The ruble has dropped 8.9% so far this year against the U.S. dollar, making it the second-worst performing currency behind the Argentine peso, according to data from Bloomberg.
Rating agency Standard & Poor's last week reduced its outlook to negative from stable, citing "heightened geopolitical risk" and the prospect of further sanctions from the U.S. and EU.
