Russian Economy Hurt by Sanctions-caused Uncertainty: Report

The biggest risk to the Russian economy at the moment comes from uncertainty related to western sanctions, which destabilizes socio-economic processes and triggers an outflow of foreign investors, experts from the Moscow-based Gaidar Institute for Economic Policy wrote in a report released on Wednesday.

According to the experts, this uncertainty poses a bigger threat to the country than the restrictions themselves. “The most recent experience of using sanctions shows that the uncertainty related to them causes the biggest problems. The nature of expected sanctions and the terms of their potential application destabilize socio-economic processes and prevent a quick adjustment to possible challenges. That triggers financial market fluctuations, strengthened volatility of the ruble, refusal of foreign investors to cooperate with Russian companies, capital outflow,” the report said.

The inflow of direct foreign investments in the Russian economy dropped to $1.9 billion in 2018 compared with $27.1 billion in 2017, which poses another potential implication of sanctions – the risk of technological inferiority, the authors said.

Meanwhile, the sanctions themselves usually have no immediate result and may even help improve the economic situation, the report said.

“The sanctions often facilitate consolidation of forces and the political system in the country facing them. In some cases, they even help improve the economic situation,” the document said.