[보고서] The Mid-April 2018 Sanctions and Rouble Crisis

Just how bad is it for the economic outlook? 

Full report download : 

The_Mid_April_2018_Sanctions_and_Rouble_Crisis.pdf

Executive summary

 If sanctions, politics and the rouble do not deteriorate much from the current position in mid-April, then the economic impact may not be too bad. 

 The Russian Countermeasure Sanctions are the bigger potential worry for western business. 

 Several of the draft Russian sanctions are directed at western imports. As with previous phases of sanctions, this may encourage more localisation. But some headquarters may be more reluctant to localise in what they see as a more volatile market. On balance, we do think that this will be a minor spur for more localisation.  

 On a mid-case scenario with no further sanctions after the next round of Russian ones, then the economy will still grow this year at about 1.8% instead of 1.9% 

 The strong oil price at over $65-70 per barrel will buttress the economic numbers. 

 The Russian Central Bank will hold fire at the current devaluation level of 10% but is ready to step in to support the rouble if need be. 

 Industry, investment and consumption numbers will be marginally softer this year and next but the change will be slight on a mid-case scenario. 

 We predict that this current crisis will leave the rouble weaker by 5-10% as an average in 2018. 

 If more publicly-quoted Russian companies are not sanctioned, then there is even the chance of a moderate market/currency rally. 

 This will have only a minor impact on inflation and we see average inflation unchanged this year at 3.5% and year-end inflation at 3.8% but both with small upside risk. 

 Government spending was very tight in the last 3 years, it loosened slightly at end 2017 but now with the need to support Russian corporates, spending may turn marginally tighter again.

 Big Russian companies may tend to sit on cash a bit more this year than they would have done. 

 The big Russian banks may pull back on some recent investment plans. 

 The budget deficit was trending downwards and could have been balanced this year (too tight?) but we now think that more government spending may be required and thus the deficit will stay around -1.2%.  

 Industry and PMI indicators remain staccato and are improving but not showing consistent, suitable growth. 

 Real wages grew at record levels in January and February thanks to a boost in nominal wages in government, education and health sectors. This must eventually help consumer spending. 

 But consumers and retailers are obsessed with promotions and discounts. 

 Consumers now have better wages and savings but a lot of their money is going into mortgages and car purchases.