S&P Slashes Russia To One Notch Above Junk

Another unwelcome economic development for Vladimir Putin: S&P just downgraded Russia to one notch above junk. It’s now at BBB- vs. BBB previously.

Why the downgrade? Basically because investor capital is fleeing the country, growth is slowing, and policymaking institutions are garbage.

The announcement can be found here.

Here’s S&P’s summary of the announcement:

In our view, the large capital outflows from Russia in the first quarter of 2014 heighten the risk of a marked deterioration in external financing, either through a significant shift in foreign direct investments or portfolio equity investments. We see this as a risk to Russia’s economic growth prospects.

We are therefore lowering our foreign currency ratings on Russia to ‘BBB-/A-3’ from ‘BBB/A-2’, lowering our local-currency long-term rating to ‘BBB’ from ‘BBB+’, and affirming our local-currency short-term rating at ‘A-2’. The outlook on both the foreign and local currency ratings remains negative.

If we perceived increased risks to Russia’s creditworthiness stemming from much weaker medium-term economic growth or due to reduced monetary policy flexibility, we could lower our sovereign ratings on Russia further. We could also lower our ratings on Russia if tighter sanctions were to result in additional weakening of Russia’s net external

Just yesterday, John Kerry warned of further sanctions on Russia made no new moves to de-escalate the situation in Ukraine.

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