New sanctions on Russia could ‘seriously’ impact growth: minister

A new round of Western sanctions on Russia over the crisis in Ukraine could seriously impact its already stalled economy, Economy Minister Alexei Ulyukayev said on Saturday.

The minister said Russia has prepared for three possible scenarios in the event of tougher economic sanctions.

The less severe one presumes sanctions on “luxury products, caviar, furs, etc,” while the worst “includes the whole complex: metals, fertilisers, oil, gas, and so forth, taking into account prices and volumes”.

In this case, “economic growth rates go seriously into the negative,” he told the Rossiya television channel, though adding that the economy can still “support” this outcome.

“Investment rates go into more negative territory, incomes decrease, inflation grows, state reserves shrink,” he said.

Ulyukayev’s comments come on the heels of Ukraine’s signing of the Association Agreement with the European Union on Friday, and a decision by Ukrainian President Petro Poroshenko to extend a shaky truce with separatist fighters in eastern Ukraine by three days.

The signing of the agreement – a 1,200-page document defining the political and trade terms under which Kiev will slip from the Kremlin’s embrace – drew threats of retaliation from Moscow.

Western leaders have warned President Vladimir Putin of tougher sanctions on entire sectors of the Russian economy if his policy on Ukraine, notably the alleged material support for the pro-Russian rebels, does not change.

EU leaders on Friday gave Moscow three more days to clearly back the Kiev government’s peace plan or face the new sanctions.

To date, EU and US sanctions have targeted specific individuals and entities, but the so-called “phase three” of the sanctions would deliver a sweeping blow to the economy at a time when Russian growth is already flatlining.

Last week Russia’s central bank said the country’s growth rate would slow to just 0.4 per cent this year.

Moody’s on Friday cut Russia’s credit rating to “negative” citing a “geo-political event risk” for Moscow, including from tougher sanctions, and said that it would further downgrade “if the domestic growth outlook were to deteriorate further”.

Moscow also considers the EU-Ukraine agreement an economic threat and has warned that it may hike tariffs for Kiev.

“Our primary concern is the effects on our market of free import of European products to Ukraine or Moldova,” Foreign Minister Sergei Lavrov told Rossiya on Saturday, voicing concern of less competitive Ukrainian products being pushed out into Russia.

Russia’s goal is not economic “revenge” for allying with Europe, he argued: “We will view this situation based one criterium – how [the agreements] might hurt Russian trade.”