The recent flare up over Crimea may have just delayed
Russia’s economic recovery.
After President Vladimir
Putin accused Ukraine of plotting terrorist attacks on the Black Sea peninsula
this month, the chance that Western countries will scrap economic sanctions
against Russia has declined, according to a Bloomberg survey of economists. Of
the 21 asked, 52 percent see the European Union beginning to lift its penalties
in the next 12 months. That’s down from 69 percent in the previous survey. Only
10 percent expect the U.S. to start removing its sanctions, down from 19
percent a month ago.
“Increasing Ukraine
tensions will undermine investor confidence, keep EU and U.S. sanctions in
place and further put off foreign capital flows, as Putin will not be focused
on economic reforms,” said Christopher Shiells, a senior analyst at Informa
Global Markets. “This will weaken the ruble and force the central bank to adopt
a more cautious, hawkish tone.”
The sanctions imposed after Russia
annexed Crimea in 2014 have compounded pain from a drop in oil prices,
triggering capital outflows and a plunge in the ruble. With oil now near $50,
the government is running its widest budget deficit since 2010 and forecasts
the economy to growth less than 1 percent next year. The central bank kept the
key rate unchanged last month at 10.5 percent after a June cut that ended
nearly a year holding pat.
The ruble has gained more than 13 percent against the
dollar this year, the second best performer among emerging-market currencies
tracked by Bloomberg, after the Brazilian real. Still, the gains have yet to
erase last year’s 20 percent loss.
Tensions between Russia
and Ukraine escalated this month when Putin accused the government of staging
attacks that killed two servicemen in Crimea. Ukraine said the incident never
happened, while both sides bolstered their forces manning the frontier along
the peninsula.
German Chancellor Angela
Merkel has said it’s not possible to ease sanctions now, as Russia hasn’t shown
progress on meeting the terms of a 2015 truce accord aimed at stopping fighting
between pro-Moscow separatists and Ukrainian troops in that country’s
easternmost regions.
This escalation over
Crimea will affect investor confidence, according to 76 percent of the
economists. It will also intensify capital outflows, 62 percent said.
“Given the prolongation of EU sanctions into early
2017 and recent hawkish statements by German Chancellor Merkel, we see only a
small chance of sanctions easing in a one-year horizon,” said Andreas Schwabe,
an economist at Raiffeisen Bank International AG in Vienna. “Moreover, for any
easing of the Western sanctions, we see the requirement of Russia showing some
flexibility in its position, which is currently not the case.”
Reducing the penalties
will have a positive impact on Russia’s economy but the benefit will depend on
the scope of any action by the EU or U.S., according to Sergey Narkevich, an
analyst at Moscow-based Promsvyazbank PJSC.
“If it is the result of
reduced military tensions and a general improvement in relations between Russia
and Western countries, the effect would be substantial,” he said. “If it is an
uncoordinated action by just some of the European countries, the influence
would be much less material.”
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