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Russia 'close to recession' due to sanctions as West fears trade damage

Russia expects economy to grow 0.5% this year, compared with 1.3% in 2013

Russian officials last night admitted the country’s economy was nearing recession due to punishing Western sanctions, while in London, the world’s biggest advertising group, WPP, cited such trading curbs as one of the biggest risks to global economic recovery.

WPP head Sir Martin Sorrell declared that, of all the risks in the world troubling his clients, the Russian situation was “the one that worries people most”.

He said it was more concerning than other potentially catastrophic events such as the eurozone debt crisis or more local, so-called “grey swans”, like the Scottish independence debate and a potential in-out EU vote.

He was speaking as one of the world’s biggest advertisers, McDonald’s, saw a fifth restaurant in Russia shut due to supposed hygiene concerns that have sprung from a crackdown by officials there widely thought to be a tit-for-tat action against the US sanctions.

Earlier this week, German industrialists predicted that the country’s hefty exports to Russia would fall by between 20 per cent and 25 per cent because of mutual economic sanctions by the EU and Russia. The Committee on Eastern European Economic Relations warned of 50,000

German job losses by the end of the year, should the sanctions remain in place.

Germany, like other countries in Europe, is reliant on a strong Russia, as are many global oil and gas companies like Exxon in the US. Concerns by such corporations have led increasing numbers to call for a change in policy.

Sir Martin said: “The geopolitical pattern has got worse in the last few months but it is still too early to judge what the impact will be. You’ve seen a number of chief executives call for negotiations – Paul Polman at Unilever, Sir Richard Branson and others – so it is obviously causing a degree of anxiety.”

Video: Ukraine and Russia hold peace talks

The former boss of Shell, Jeroen van der Veer, said at the weekend: “The sanctions do not work.”

Meanwhile, in Russia, the pain is clear to see.

“The economy is close to recession,” said Oleg Zasov, the head of forecasting at the economy ministry.

The ministry held its growth forecast of just 0.5 per cent this year, compared with  1.3 per cent in 2013. A month ago it had defiantly predicted growth of 1 per cent when the West imposed its first sanctions over Moscow’s support for pro-Russian rebels fighting in eastern Ukraine.

Mr Zasov said the seasonally-adjusted, second-quarter GDP growth was “close  to zero”.

Yesterday, Rosneft and Lukoil, Russia’s biggest oil producers, turned to a local Russian bank to replace loans that would formerly have come from international banks.

Western lenders now fear dealing with Russian companies for fear of falling foul of sanctions and a plan by oil-trading giant Vitol to raise $2bn (£1.2bn) to buy Rosneft’s oil is reportedly on hold due to fears of US penalties.

The US sanctioned Rosneft on 16 July.