By Lidia Kelly
MOSCOW (Reuters) - Russia's economy and the rouble will remain volatile this year and its involvement in the Ukraine crisis is likely to trigger a slump in investment and near-record capital outflows, a Reuters poll showed.
The 16 economists surveyed kept their 0.8 percent growth forecast for 2014 unchanged from last month but slashed their projection for capital investment, a major driver of Russia's economy in the past.
The poll, published on Wednesday, was taken before the International Monetary Fund cut its forecast for Russian gross domestic product growth to 0.2 percent from 1.3 percent earlier in the day. The IMF's mission chief to Moscow, Antonio Spilimbergo, also told reporters that international sanctions imposed on Moscow over its actions in Ukraine were hurting the economy, which had already tipped into recession.
The World Bank has said the economy could shrink by as much as 1.5 percent this year, while Russia's Economy Ministry expects a 1.1 percent expansion, or 0.5 percent if the government does not relax its rule that limits budget spending.
The poll forecast a 2.5 percent decline in capital investment, however, sharply lower than the -1.1 percent projected last month.
"Investment in fixed assets will continue to decline on increased geopolitical risks and volatility in the financial market," said Oleg Kuzmin, an analyst at Renaissance Capital.
Some $63.7 billion of capital left Russia in the first quarter, when it annexed the Crimea region from neighbouring Ukraine, and analysts in the poll said capital outflows were likely to reach $110 billion by the end of this year.
That is close to the record $120 billion (72.19 billion pounds) of outflows seen during the global financial crisis in 2008. Spilimbergo said the IMF expects capital outflows of $100 billion this year, in line with the Russian government's own forecasts.
The United States and the European Union imposed a new wave of sanctions earlier this week against Russia for its involvement in Ukraine and threatened tougher economic measures if Moscow does not de-escalate the crisis.
"The continued levying of sanctions against Russia will continue to weigh on the investment outlook and lead to accelerating capital outflows," said Christopher Shiells, emerging market analyst at Informa Global Markets in London.
ECONOMY DRIVE
The most recent official data showed that companies' pre-tax consolidated profits fell by nearly a third in the first month of 2014, the highest drop since autumn 2009, when Russia was suffering the impact of the global financial crisis.
This suggests an investment recovery the government had been hoping for this year will probably fail to materialise.
"We believe that companies continue to shift to economising: to curtail investment programmes while waiting for a better time to expand business, as well as to optimise the costs of staff," VTB Capital economist Vladimir Kolychev said.
The poll saw industrial output almost stalling this year, with growth of just 0.3 percent after a 1.1 percent rise in the first quarter, when some industries - notably pulp and paper and chemicals - benefited from the rouble's decline.
"Given the substantial capital outflows in the financial account, this (Q1 growth) is insignificant," said Olga Lapshina, deputy head of strategy at Bank St. Petersburg.
"We expect that imports will continue to decline moderately this year, which ... will contribute to further weakening of the rouble."
The Russian currency, which is already down some 10 percent this year against the dollar
TIGHT MONETARY POLICY
The Russian central bank has raised its key lending rates by a combined 200 basis points in the past two months to 7.5 percent in a bid to combat inflation and capital flight.
That has prompted analysts in the poll to shift their expectation of when the bank will start easing monetary policy to the final quarter of 2014 from the third quarter last month.
They expected 2014 inflation of 6 percent in 2014, above the central bank's target of 5 percent.
"The central bank is trying to provide in advance extra support for the rouble exchange rate, as the geopolitical environment surrounding Ukraine may bring negative surprises any moment, and fears among rouble investors of Russia's military involvement in the situation in Ukraine remain high," said Vladimir Miklashevsky, an analyst at Danske in Copenhagen.
VTB's Kolychev reckoned the probability of the central bank lowering its rates before the fourth quarter "is close to zero."
Inflationary pressures are likely to subside by the end of the year, allowing monetary policy easing. But the economy, markets and the rouble are set to remain volatile.
"It is not a secret that markets will continue to closely monitor developments in Ukraine and assess risks of more tangible sanctions," ING Bank's chief Russia economist Dmitry Polevoy said.
"It is also obvious that the measures already taken have quite tangible consequences for business activities of many companies, when it comes to lower demand (for their products), deferment of projects, tighter credit conditions and additional costs associated with assessment of possible projects."
(Reporting by Lidia Kelly; Editing by Catherine Evans)