More evidence that Putin’s ventures into Ukraine are going to cost him a lot.
Citi is predicting a massive GDP slowdown due to it: from 2.6% to 1.0%.
We downgrade GDP growth on heightened uncertainty. The rising tensions in Ukraine make for a very challenging backdrop to the Russian economy, creating substantial downside risks to economic performance. The combination of more subdued investment and consumption spending related to heightened uncertainty, and tighter monetary policy, lead us to downgrade our 2014 GDP forecast from 2.6% to 1.0% (1.3% in 2013).
Investment spending will be the key avenue via which market volatility will affect growth performance. The sectoral breakdown of last year’s investment suggested that private-sector consumption-related investment has been growing, while it was oil and gas investment that was holding back overall investment activity. Our more positive view on 2014 GDP was critically dependent on the assumption that government-led oil and gas investment would come out of its 2013 doldrums, with new projects coming on stream. However, given the uncertain backdrop, we now have much less confidence about this scenario playing out, even if, in principle, the government may feel more pressure to ‘take control’ of SOE investment plans. We, therefore, cut our real investment growth forecast to zero from 3.8% previously
Another element that hurts is the fact that Russia’s Central Bank has been forced to tighten significantly to defend the ruble. Putin will pay.
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