New Cold War will send Russia into recession

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The sanctions imposed by USA and EU over Russia caused by the annexation of the Crimea may send the country into recession. According to the analysis of Russian banks the ninth largest economy in the world will shrink for at least two quarters, due to the Crimean crisis. The reason is the expected international sanctions for the annexation of the Crimean peninsula, which will limit the investment and will increase the cost of crediting from the foreign markets.

The sanctions, which have so far focused on the specific individuals will probably be extended and will be directed to specific areas of the economy. The Russian President Vladimir Putin expanded his popularity among the people to 5-year high after the action in the Crimea, which became part of Russia again after 60 years. However, this year the Russian stocks reported extremely poor results compared to markets in Europe and USA.

According to the analysts we see the start of a new geopolitical and economic Cold War, which will take at least 2 to 3 years to establish some sort of equilibrium.

The Russian benchmark MICEX dropped with 11.6% since the beginning of 2014, compared with a decline of 4.8% to an index MSCI Emerging Markets. During today’s trading the index rose slightly with 0.16% to 1,309.45 points.

Meanwhile, the Russian currency is the second-worst performing the Argentine peso among the 24 leading money from the developing world. Although today it rose with 0.42% to 36.097 against the USD. The Russian money dropped just about 9% since the beginning of 2014.

Even before the strongest clash with the West after the Cold War, the Russian economy faced its weakest growth since the crisis start in 2009. The recent plans of the local politicians to drive consumer demand failed over and over again and cannot compensate for tight investment.

Just a few days ago the Russian Central Bank unexpectedly raised its key interest rate with 1.5 percentage points after the invasion of the war in the Crimea cause a fall of the ruble. Vladimir Putin approved the final annexation of the Black Sea peninsula of March 21st.