Firms should prepare now for tougher than expected sanctions
In the past few months, CIS nations have been experiencing some of the most turbulent times in decades. Russia is edging closer to war with Ukraine, and wide scale protests successfully removed Nursultan Nazarbayev from power in Kazakhstan.
While the situation in Kazakhstan should continue to calm and potentially present an upside for economic growth in the long term, the threat of larger-scale incursion by Russia into Ukraine is reaching a climax, which will cause economic consequences for Russia. Moscow is expected to act very soon, by either escalating tensions or moderating them, with both scenarios almost as equally likely.
Even if Russia does back down, firms should expect some consequences, such as a weaker currency, higher inflation and higher interest rates weighing on consumer demand. Worst-case scenario, a Russian invasion would incur significant Western sanctions that will significantly erode demand, so firms should prepare contingency plans for their businesses in the region.
Russia’s market expansion will continue this year, but there will be a notable slowdown. The central bank raised the key rate to 8.5% in December and is expected to do so again this month, amid high inflation. The rate won’t fall toward 6% again until 2023, and perhaps longer depending on potential sanctions due to the Ukraine conflict.
Elsewhere, the Duma has deferred discussion of federal QR codes as the hospital system has successfully weathered the recent surge in covid cases. The adequate vaccination rate paired with natural immunity will likely help Russia get through this latest wave, with cases expected to fall by the middle of February.
The West has become more unified in its response to Russia’s aggression and has threatened sanctions including bans on trading in Russian sovereign debt, sanctions against Nord Stream 2, export controls of high-tech products, sanctions against major Russian state-owned banks, and banning Russia from the SWIFT international payments system.
If these tougher than expected sanctions occur, the ruble will be pushed to at least 80 to dollar further exacerbating the economic consequences for Russia.
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You can read more about the key developments in Russia as well as the rest of the CIS nations in our latest Russian and CIS Market Monitor.
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