Putin plays a surprise card

Russian stocks and the rouble bounced this week as Russia’s president Vladimir Putin appeared willing to help broker peace in eastern Ukraine. He laid out a seven-point ceasefire plan, including an international monitoring force.

In the previous few days, the rouble had hit a record low against the dollar after more Russian troops were sent to Ukraine. The renewed incursion prompted the EU to consider tougher economic sanctions against Russia.

This week’s relief over the ceasefire news was tempered by reports of ongoing explosions in the eastern city of Donetsk.

What the commentators said

Russian president Vladimir Putin is “destined to win” this “geostrategic hand of cards”, said John Hulsman of John C Hulsman Enterprises. A ceasefire would lock in Russian gains, “creating a de facto autonomous zone in [eastern Ukraine] that looks to Moscow”.

This would entrench the “status quo of a Ukraine unable to become economically or politically successful, the endgame the canny Russian president has sought all along”.

As for further sanctions, Putin knows not to expect anything significant, added Hulsman. “Iran-style sanctions” would send a fragile Europe into recession, given its dependence on Russian oil and gas.

However, the sanctions seen so far, along with Russian retaliatory measures, are “beginning to weigh” on the Russian economy, said Chris Weafer of Macro Advisory. Russian banks that have trouble getting loans from Western sources turn to the Russian central bank, which has had to put up interest rates to stem capital outflows.

As credit gets pricier, consumers have more trouble servicing debts and thus also tighten their belts.

At the same time, the fall in the rouble and banned fruit imports, a response to Western sanctions, are raising prices for consumers. Car sales were down by 23% year-on-year in July.

Russia’s decade-long consumer boom appears to be drawing to a close, while investment is barely growing, Capital Economics pointed out. Improving investment is crucial to raising the country’s growth potential, and the foreign expertise required to do so is now even less likely to be forthcoming. The economy is flirting with recession.

Patience could give the West the upper hand here, said Hulsman. The Kremlin may be willing to shrug off a recession for now. “But how will the Russian people feel” in three years – or in six?

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

FREE daily investment email from MoneyWeek
Receive our thought-provoking investment email Money Morning every weekday morning, plus occasional promotions, & become a smarter investor.

Please enter a valid email address

To sign up, enter your email address:

MoneyWeek magazine

Latest issue:

Magazine cover
Prime location

The best property buys in the eurozone

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


27 May 1895: Birt Acres patents the Kineopticon


On this day in 1895, Birt Acres patented his design for the film camera, the Kineopticon – a decision that would doom his attempts to set up a business in early cinema.

The Kids' Portfolio: the four best funds to buy for your children

Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.