Thursday, November 12, 2015

Financial Comment: Ukraine and Russia: no war, no peace

Ukraine and Russia: no war, no peace

Over the course of the war in Eastern Ukraine which is a year and eight months old now, the Ukrainian hopes have to a large extent been focused on the effect of Western sanctions on the Russian economy. As the war has entered a more quiet stage that, many argue, is indeed the result of the sanctions, it’s time to count the economic score. Luckily for Ukraine, despite the fact that Russia has stopped its active aggression in the Donbas, the West has not lifted the sanctions, while the oil prices remain quite low, below $50/barrel. Putin’s Syrian adventure, which probably was designed, in particular, to both eliminate the case for the Western sanctions and raise the oil price, is so far failing.

So, the Russian economy is stalled at the levels of decline it has seen for more than half a year. In the third quarter of 2015, Russia’s GDP dropped by 4.3%. However, the economy seems to be bottoming out as the GDP in January-September dropped by just 3.8% and in September grew by 0.3% as compared to August.

The situation in the Ukrainian economy is somewhat similar. Ukraine’s Central Bank estimates that the country’s GDP grew by 1% in the third quarter. What differs is the overall rate of decline: the GDP dropped by 14.7% in the second quarter and is expected to decline by about 9% in the year as a whole. The war has obviously had a bigger human and economic price for Ukraine than for Russia. Will the West lift or ease its sanctions against Russia? Where is the price of oil going? Will the fighting intensify in the Donbas? Is this war finally becoming a long-term frozen conflict? All these questions beg answers, but, as the frozen conflicts go, it may take a long time to get the answers to them.

Ukrainian Credit Union Limited

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