Russian and Western sanctions will hit Russian growth, EBRD says

By EBRD  Press Office
@ebrd


The Russian economy will come under pressure both from Western sanctions and the sanctions that Moscow has imposed on the West in response, the EBRD said in its latest economic outlook.
 
The report said fresh EU sanctions announced in September were particularly strong as they were targeting the oil sector, the core of the Russian economy.
 
The new outlook confirmed a prediction from May that the Russian economy would stagnate in 2014, after a slightly better than expected first six months. However, the Bank is revising down the 2015 growth forecast to a contraction of 0.2 per cent. In May it forecast that the economy would grow by 0.6 per cent in 2015.
 
The EBRD report said sanctions were affecting business confidence in Russia, restricting the access of companies and banks to international capital markets and contributing to capital flight.
 
Sectoral sanctions in general had a greater economic effect than measures taken against individuals. This was especially true of the sanctions on the oil sector, since one quarter of budgetary revenues and half of Russia's exports are oil-related. 
 
The report noted that Russian corporates needed to make repayments of around US$ 190 billion on foreign debt by the end of 2015. As they were unable to borrow externally, international reserves - standing at US$ 465 billion in September - may come under pressure and interest rates may have to rise further.
 
At the same time, sanctions on Russia would weaken business confidence and reduce private investment, while precautionary household savings would rise and put a damper on consumption.
 
Russia's foreign trade was expected to suffer while existing trade and financial links are restructured in the wake of the sanctions. These links were likely to be gradually reoriented from the West to the East and to Latin America.
 
Russia's own ban on food imports from countries that have imposed sanctions could drive up inflation in Russia by one to two percentage points.
 
The imposition of a flight ban over Russia would affect both Russia and western countries. The potential ban on transcontinental flights may cost Aeroflot an annual US$ 300 million in lost royalties while European airlines may face cost increases of several hundred million dollars as they would have to take longer routes.