Putin plays a surprise card

Russian president Vladimir Putin surprised markets by appearing willing to broker a ceasefire in Ukraine.

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

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?

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
A “new deal” needn’t be green
UK Economy

A “new deal” needn’t be green

Britain is seeking measures to revive its Covid-ravaged economy. It should choose from a broader palette than just “green”, says Matthew Lynn.
13 Sep 2020
Covid: were the lockdowns worth it?
UK Economy

Covid: were the lockdowns worth it?

Governments around the world followed the authoritarian example of China in dealing with the emergence of Covid-19. Was that a wise choice?
12 Sep 2020
The charts that matter: has the dollar’s rally paused, or is it over?
Global Economy

The charts that matter: has the dollar’s rally paused, or is it over?

The US dollar ended the week higher, although off its highest point. Is that it? John Stepek looks at how it's affected the charts that matter most to…
12 Sep 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Central banks want politicians to take charge – but what will they do?
US Economy

Central banks want politicians to take charge – but what will they do?

The US Federal Reserve has come to the end of the road in terms of what it can do to accelerate any recovery, says John Stepek. It's over to the polit…
17 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020