Russian economy, tycoons take hit in Crimea crisis
By NATALIYA VASILYEVA
the associated press | March 21,2014
ap file photo
Russian President Vladimir Putin, second right, visits the Rosa Khutor Alpine Center in Rosa Khutor outside the Black Sea resort of Sochi, southern Russia, last month.
Russia’s most powerful have reason to be worried about the economic fallout from the takeover of Crimea and the sanctions imposed by the West, as forecasts for Russiaís economy have dropped sharply and capital flight is soaring.
MOSCOW — Russia’s most powerful businessmen waited for over an hour Thursday to hear from President Vladimir Putin, whose decision to annex the Crimean Peninsula has cost their companies hundreds of millions of dollars in market value.
When Putin finally showed up, he spoke to them for five minutes — and gave them no reassurances that they or their companies will get any respite from the uncertainty created by the takeover of a piece of land of little value to them beyond national pride.
Russia’s economy has been pinched by the crisis over Crimea, even before the new sanctions the U.S. and Europe announced Thursday.
The Russian stock market has tanked 10 percent this month, wiping out billions in market capitalization. Economists have slashed growth forecasts to zero this year and foreign investors have been pulling money out of Russian banks. The Standard & Poor’s ratings agency on Thursday cited all these issues when it cut its outlook for the country.
Because U.S. and European leaders have said they are willing to impose ever stiffer sanctions, ratcheting up the pressure on Russia step by step, the concern is how severe the penalties might get.
“The main risk is in the sanctions that have not been announced,” says Nataliya Orlova, chief economist at Alfa Bank in Moscow. “It’s hard to estimate the effect right now because we don’t know what they will be.”
On Thursday, the U.S. slapped asset freezes on four businessmen linked closely to Putin as well as on a Russian bank that provides them support. If Putin does not back down over Crimea, as most expect, those sanctions could broaden further in coming weeks.
Russia’s economy was already weak going into the crisis, expanding only 1.3 percent last year. For this year, forecasts for growth of about 2 percent have been written off altogether, with Putin’s adviser Alexei Kudrin expecting no growth at all.
The ruble has lost 9 percent against the dollar in less than three months. That will make imports more expensive for average Russians. In a bid to support the currency, the central bank raised its main interest rate sharply last week from 5.5 to 7 percent, but that will hurt the economy, too, by making loans more expensive.
Investors took $35 billion out of Russia in January and February — about half as much as in the entire preceding year. The outflows could soar to $50 billion per quarter if sanctions get tougher, Kudrin has warned.
The big risk for Russia is if the U.S. and Europe expand their sanctions to more aggressively target trade relations. That would be a last resort, at least for Europe, which has a lot to lose itself: It imports a third of its gas from Russian and has strong trades ties.
But even if outright trade embargoes are avoided, the risk of possible sanctions is itself damaging. Investing or lending in Russia will carry higher risks, investment decisions will be delayed and investors will feel inclined to keep on selling stocks, says Charlie Robertson, an analyst at Renaissance Capital in London.
At least publicly, Russian tycoons are keeping a low profile.
At the business group meeting chaired by Putin on Thursday, Alexei Mordashov, worth around $13 billion, and Dmitry Pumpyansky, worth $2 billion, did not utter a word of concern or complaint — even though their companies have been getting slammed in the stock markets.