It's been over half a year since the United States and European Union first imposed sanctions on Russia, and they have since tightened them. High uncertainty has triggered massive capital outflows, while currency volatility and borrowing costs have surged.
The first rounds of sanctions against Russia have produced real economic pain, limiting access to capital markets and increasing the cost of borrowing. Are things going to take a turn for the worse? To what extent will the Russian economy deteriorate?
Latvian fishing industry could lose up to $225 million because of anti-Russia sanctions, Latvian Agricultural Minister assumed.
Economic sanctions imposed on Moscow over the conflict in Ukraine might threaten Russia’s energy future – a serious threat many analysts say, given the country’s over reliance on oil and gas revenues.
The import substitution phenomenon has given a positive impulse to Russia’s manufacturing production. The seasonally adjusted HSBC Russia Manufacturing Purchasing Managers’ Index was above the 50 threshold in July-August, indicating cautious expansion, amid overall slowing consumer demand.
After the West imposed three rounds of economic sanctions, Russia retaliated with a ban on imports of food and agricultural products from the EU, US, Canada, Australia and Norway. Beef, pork, fish, fruit, vegetables and dairy products from were banned for one year.
Russian shares are currently the cheapest among major emerging markets, and have been so for quite a while already, while the current geopolitical crisis over Ukraine and related economic sanctions have caused another serious selloff.
Geopolitical risks and increased financial market volatility have taken their toll on investment in Russia. In the first quarter of 2014 capital expenditure dropped by 7% year-on-year and improved slightly in the second quarter contracting by 2.1% year-on-year.
Russia’s financial sector is becoming increasingly affected by the current geopolitical tensions and related economic sanctions. The sanctions led to increased volatility on the foreign exchange market and a significant depreciation of Russia’s national currency.
As Western sanctions are enhancing an existing slowdown, most forecasts say that the Russian economy will grow by just half a percent this year. This effectively means stagnation, which analysts note is likely to last for more than a year.
With sanctions weighing on business sentiment, Russia’s economy has been losing loads of capital this year. Capital flight from Russia is now dominated by heightened uncertainty and a depreciating ruble.
Russia’s banking sector has been locked out of international capital markets since July when the US and the European Union included a number of top Russian lenders, both private and state-owned, in its third round of sanctions.
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