Russia is facing a serious recession because of Sanctions
Like I said before, Sanctions will cause thousands to millions of people to go bankrupt not just in Russia but throughout the world of people and companies heavily invested in Russia.
Russian
President Vladimir Putin sent his popularity surging to a five-year
high by... Read More. Russian President Vladimir Putin sent his
popularity surging to a five-year high by making Crimea a part of Russia
again after 60 years and says he won't be ...
Russian President Vladimir Putin sent his popularity surging to a five-year high by... Read More
Western sanctions are pushing Russia toward recession and the pain could intensify if U.S. and European leaders turn the screw over tensions in Ukraine.
Banks
including state-run VTB Capital say the world’s ninth-biggest economy
will shrink for at least two quarters as penalties for annexing Crimea
rattle markets, curb investment and raise the cost of borrowing.
Sanctions that have so far focused on individuals via visa bans and
asset freezes may be expanded to target specific areas of the economy.
President Vladimir Putin
sent his popularity surging to a five-year high by making Crimea a part
of Russia again after 60 years and says he won’t be swayed by foreign
retaliation. Even so, the costs of the decision are starting to unfold,
with Russian stocks this year’s worst performers and the economy set to
suffer more than the West, said Mircea Geoana, Romania’s government representative for diplomacy and economic projects.
“We’re witnessing the start of a new geopolitical and economic Cold War
and I think it will take at least two to three years to establish some
sort of equilibrium,” he said. “The ones who’ll pay the bill for this
aggression, no matter how popular and patriotic it looks, will be the
Russian people because there’s a huge difference between the economic
force of the EU and the U.S. and that of Russia.”
Photographer: Sergei Supinsky/AFP via Getty Images
Demonstrators hold a large flag, a combination of a Ukrainian, Crimean, and Tatar... Read More
Russia’s Micex stock index has plunged 11.6 percent this year compared with a 4.8 percent decline for the MSCI Emerging Markets Index. It was 1.6 percent higher as of 11:51 a.m. today in Moscow, the biggest advance in almost a week.
Billionaires Targeted
The ruble is the second-worst performer against the dollar behind Argentina among 24 developing-market currencies tracked by Bloomberg, weakening 9 percent. It rose 0.4 percent today.
After the U.S. expanded sanctions March 20 to include businessmen linked to Putin, such as billionaires Gennady Timchenko
and Arkady Rotenberg, Standard & Poor’s and Fitch Ratings cut their
outlook on Russia’s credit grade to negative from stable, suggesting a
downgrade is most likely next.
The two companies, which said
Western banks are becoming reluctant to lend to Russia, rate the world’s
biggest energy exporter at BBB, the second-lowest investment grade and
on par with Brazil and South Africa.
Even
before the standoff with the West, the worst since the Cold War,
Russia’s economy was facing the weakest growth since a 2009 recession as
consumer demand failed to make up for sagging investment. The current
situation in the economy “bears clear signs of a crisis,” Deputy Economy
Minister Sergei Belyakov said March 17 after the first European Union
and U.S. sanctions.
Photographer: Andrey Rudakov/Bloomberg
An employee assists a visitor at the reception in the headquarters of the Micex-RTS... Read More
‘Uncertainty Shock’
Russia will probably dip into
a recession in the second and third quarters of this year as “domestic
demand is set to halt on the uncertainty shock and tighter financial
conditions,” according to Moscow-based VTB.
Russia’s central bank unexpectedly raised its benchmark interest rate
by 150 basis points after the armed takeover of Crimea triggered a rout
in the ruble. Putin completed his annexation of the Black Sea peninsula
March 21.
Russia may shun foreign debt markets in 2014 because
of higher borrowing costs, according to Finance Minister Anton Siluanov.
He expressed frustration at disruptions to MasterCard Inc. and Visa
services for cards issued by banks on or linked to persons on the U.S.
sanctions list.
“Some people say these sanctions won’t affect Russia’s financial system but they already are,” he said March 21.
‘Mosquito Bite’
Even
so, the measures may not have much effect on the individuals targeted
or on Putin’s thinking on Ukraine, whose government accuses the Russian
leader of stirring up unrest elsewhere and planning an invasion of the
country’s east.
The sanctions represent “a mosquito bite”
because most officials on the list aren’t permitted to travel abroad
privately and have most of their business in Russia, said Konstantin
Kostin, a Kremlin adviser who heads the Civil Society Development Fund.
Government members featured in a new EU list March 21 include Putin
aides Sergei Glazyev and Vladislav Surkov.
Putin, meanwhile, would require stiffer penalties to budge, according to Ariel Cohen, senior fellow at the Republican-leaning Heritage Foundation in Washington.
“You’re
dealing with an individual who won’t be easily intimidated,” he said
March 21 by phone from Washington. “The West is escalating sanctions but
Russia isn’t going to back off on Crimea and Ukraine that easily. It
will take more than pinpointed individual sanctions to start rolling
this back.”
Trade Ties
The EU, which relies on Russia
for a third of its energy imports, has struggled to find ways of
punishing Putin because trade steps risk damaging Europe’s economy. Banking curbs would hurt Britain, an arms embargo would bar France from selling Mistral-class helicopter carriers to the Kremlin and cutbacks in gas purchases would harm a swathe of EU nations.
Western
officials can get around this by talking up the possibility of future
sanctions, which erodes business confidence and hurts Russia’s economy,
Fredrik Erixon, director of the European Centre for International
Political Economy, said March 21 by phone from Brussels.
Capital
outflows from Russia may reach $70 billion in the first quarter and
there’s “a real risk that this could push Russia into recession,”
London-based Capital Economics said last week in a report. Outflows were $63 billion in 2013.
“Investors
and ratings agencies are basing their views not on what’s happened with
sanctions so far but on what may happen,” according to Erixon, who sees
Western measures against Russia being tightened, led by the U.S. “I’m
convinced sanctions will escalate and the main decision-maker will be Barack Obama. If he escalates the EU will almost have to follow.”
To contact the reporters on this story: Andra Timu in Bucharest at atimu@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net
To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Andrew Langley, Andrea Dudik
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The problem might come if Putin "Doubles Down" which means that "What if he uses a recession to completely mobilize and take back all the countries he can blitzkrieg style? His thought might be: "If I steal back all these assets I might be able to keep right on going."
However, he would keep right on going without world economic help and this might create Russia into another nation like a very big "North Korea" which would be pretty horrific for the world to deal with.
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