Tag Archives: election meddling

‘Russia in the doldrums?’: new U.S. sanctions to weigh on recovery

By Jack Stubbs and Polina Nikolskaya

MOSCOW (Reuters) – An escalation in U.S. sanctions against Moscow risks derailing a fragile recovery in Russia’s economy, which had just begun to take hold after the Kremlin’s last confrontation with the West in 2014, analysts and investors said on Monday.

The United States imposed major new sanctions against Russia on Friday, striking at senior Russian officials and some of the country’s biggest companies in one of Washington’s most aggressive moves to punish Moscow for its alleged meddling in the 2016 U.S. election and other “malign activity”.

“One gets the impression that since 2014 we have been convinced that sanctions are painless for our economy,” said Kirill Tremasov, head of research at Loko-Invest and former director of the Russian Economy Ministry’s forecasting department.

“This is completely groundless. What happened on Friday opens a new stage in relations with Western countries. We have found ourselves in a new reality. And it is very, very serious.”

Analysts and investors in Moscow said the sanctions could consign Russia to years of low growth, frustrating government efforts to stimulate a rebound from a two-year downturn brought on by low oil prices and Western sanctions over Moscow’s role in the Ukraine crisis.

Putin was re-elected for his fourth presidential term in March with a huge majority, but is under increasing pressure to meet voters’ expectations of better growth and assuage concerns about falling living standards.

SLOW-GROWTH ENVIRONMENT

After two years of contraction, Russian GDP returned to growth of 1.5 percent last year on the back of higher oil prices, still short of a government target of 2 percent.

Chris Weafer, a senior partner at economic and political consultancy Macro Advisory, said he still saw Russia’s economy growing by 1.8 percent this year, with oil prices above $60 a barrel.

“But the big question, of course, is ‘How long does Russia stay in this low-growth environment?’ That’s where the impact of sanctions happens,” he said.

“We all know that the economy needs to grow at a faster pace over the course of the next (presidential) term, it needs to get stronger – and sanctions and the impact on foreign direct investment, that’s where it comes in,” he said. “2018 is the year of Russia in the doldrums.”

The latest round of U.S. sanctions represents the biggest escalation in Western action against Russia since Washington and the European Union first targeted oligarchs close to Putin and their businesses over the Ukraine crisis in 2014.

Investors said the inclusion of people who are not traditionally seen as part of Putin’s inner circle showed that any Russian company or business leader could now be targeted.

Russia’s rouble suffered its biggest daily fall in over three years on Monday and stocks in major Russian companies also slid, as investors reacted to the new sanctions. State-owned Sberbank, often seen as a barometer of the wider economy, fell 17 percent in Moscow and aluminum giant Rusal <0486.HK> lost over half its value in Hong Kong after its main owner Oleg Deripaska was named on the sanctions list.

TIGHTER MONEY

The increased uncertainty and risk will make it harder for Russian companies to borrow abroad and reduce the amount of inward investment, said Tim Ash at BlueBay Asset Management.

“Unless there is a move to de-escalation, you have to assume that financing conditions around Russia will get even tighter,” he said. “Long-term, that’s going to be bad for growth and mean even more stagnation in the Russian economy.”

Natalia Orlova, head economist at Alfa Bank, said the central bank might now take more time over interest rate cuts that could boost growth: “Based on economic logic … it seems to me that it is dangerous to hurry with a rate cut in such uncertain conditions.”

Loko-Invest’s Kirill Tremasov said the biggest danger of the new sanctions might be in scaring foreign investors off Russian OFZ treasury bonds, popular in the West because of their high yields.

The yield on the benchmark 10-year OFZ rose as high as 7.32 percent on Monday as the price of the bond fell. It had stood at around 7.05 percent last week.

Foreigners’ holdings of OFZ bonds stood at nearly $40 billion, or 33.9 percent of all OFZ bonds as of Feb. 1, the last period for which data was available.

“For foreign investors, this is a very, very serious signal … and now there could be some OFZ outflows,” Tremasov said. “This will be reflected in the growth of interest rates in the economy.”

(Additional reporting by Andrey Ostroukh; Writing by Jack Stubbs; Editing by Kevin Liffey)

UK defence minister says Russia looking to cause thousands of deaths in Britain

Russian President Vladimir Putin meets with employees during a visit to the Gorbunov Aviation factory in Kazan, Russia January 25, 2018. Sputnik/Alexei Nikolsky/Kremlin via

LONDON (Reuters) – Britain’s defence minister warned that Russia was looking to damage the British economy by attacking its infrastructure, a move he said could cause “thousands and thousands and thousands of deaths”, The Telegraph newspaper reported.

Relations between Russia and Britain are strained. Prime Minister Theresa May last year accused Moscow of military aggression and in December, Foreign Secretary Boris Johnson said there was evidence showing Russian meddling in Western elections.

Britain has also scrambled jets in recent months to intercept Russian jets near the United Kingdom’s airspace.

“The plan for the Russians won’t be for landing craft to appear in the South Bay in Scarborough, and off Brighton Beach,” defence minister Gavin Williamson, tipped as a possible successor to May, was quoted as saying by The Telegraph.

“What they are looking at doing is they are going to be thinking ‘How can we just cause so much pain to Britain?’. Damage its economy, rip its infrastructure apart, actually cause thousands and thousands and thousands of deaths, but actually have an element of creating total chaos within the country.”

The Kremlin, which under Vladimir Putin has clawed back some of the global influence lost when the Soviet Union collapsed, has denied meddling in elections in the West. It says anti-Russian hysteria is sweeping through the United States and Europe.

Williamson said Russia was look at ways to attack Britain.

“Why would they keep photographing and looking at power stations, why are they looking at the interconnectors that bring so much electricity and so much energy into our country,” he was quoted as saying.

“If you could imagine the domestic and industrial chaos that this would actually cause. What they would do is cause the chaos and then step back.”

“This is the real threat that I believe the country is facing at the moment,” he said.

The Russian Defence Ministry said on Friday that Williamson’s comments showed he had lost his understanding of what was reasonable, RIA news agency reported.

“It is likely he has lost his grasp on reason,” RIA quoted ministry spokesman Igor Konashenkov as saying.

(Reporting by Costas Pitas; editing by Stephen Addison)