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With the West trying to second guess Russia's intentions towards Ukraine following the annexation of Crimea last week, it continues to press for more sanctions. Moscow, in turn, has shrugged off the moves, but the Russian economy is exhibiting signs of stress.

In the latest move, an emergency meeting of the G7 countries on March 24 decided not to go ahead with a G8 meeting planned for the summer in Sochi, but to hold a G7 summit in Brussels instead without the participation of Russia.

As Russian troops appeared to mass on Ukraine's eastern border, a G7 statement hinted that broader sanctions would be imposed against Russia if it made further expansionist moves. "We remain ready to intensify actions including co-ordinated sectoral sanctions that will have an increasingly significant impact on the Russian economy, if Russia continues to escalate this situation," the statement said.

The move is an attempt to up the ante on Moscow over its annexation of Crimea and the pressure it continues to apply to the interim government in Kyiv. The EU and US last week imposed additional asset freezes and visa bans for officials associated with Russian President Vladimir Putin and others.

Slowdown

Despite claims from Russia belittling the effectiveness of the sanctions, officials in Moscow are warning the already sluggish economy is suffering. Deputy Economy Minister Andrei Klepach said on March 24 that real GDP growth decelerated to just 0.3% year on year in February, before adding that despite the weak dynamics the economy is not in recession.

However, the standoff over Ukraine appears to be antagonizing the economy's Achilles' heel. Klepach said capital outflows look likely to reach $65bn-70bn in the first quarter. "Given an earlier estimate of $35bn for [the first two months of the year], it follows that capital flight surged to $30bn-35bn in March," point out analysts at Uralsib. "Despite strong trade balance surplus, capital flight is the key reason for the weak ruble, which is fueling consumer inflation."

The sanctions from the US and EU are clearly not the direct cause of the mounting pressure on the Russian economy. However, the effect of the standoff and the threat of further sanctions has pushed banks and investors to start limiting their exposure to Russia. Washington has promised to respond to any "escalation" from Russia in the coming weeks.

Meanwhile, the effects of the sanctions do appear to be giving Russia pause for thought. "Moscow is seeking to take stock of the repercussions - the scope and impact of Western sanctions - of its actions in Crimea before making its next move," suggests Tim Ash at Standard Bank.

Informal club

Nevertheless, Russian Foreign Minister Sergey Lavrov sought to bat aside the G7 snub. He claimed that Russia cannot be kicked out (currently the country's participation is only "suspended", according to German Chancellor Angela Merkel) as the G8 is not a formal organization.

"The G8 is an informal club, no one gives out membership cards and no one can expel members," he said at a press conference. "If our Western partners believe that this format has exhausted itself, let it be. We are not clinging to it."

Bravado aside, Russia really doesn't care that much about the G8. It has been hoping to sideline the exclusive club of the world's top economies to make the broader G20 the key international body. President Vladimir Putin said explicitly in a speech in 2012 that it was time for the G20, which includes many of the world's emerging markets, to take over the reins of global coordination, as it fits better with his conception of a "multipolar" world.

That view of shifting global power is a key point that Moscow has made throughout the ongoing crisis in Ukraine. "The time has come for the G20 to take on the full responsibility of effective leadership," Putin said in his speech. "This means that the G20 should not turn into another elite club that cares only about its members. Selfishness and backroom deals do not add to stability and confidence. The G20 is to become a venue for elaborating fair rules for the sustainable development of the entire global economy."