Recession in the Eastern Europe will finish
The last visit of the secretary of state Mr. John Kerry is a good chance for the Eastern Europe to get out from the terrible situation in which it is. In our outlook there are high probabilities that Mr. Putin Is going to take this chance that has been offered by the West. Russia and Ukraine have tumbled into recession already. To have an idea about the terrible situation of the economy in Ukraine note that only in the last year the GDP dropped 17.6%.
Meantime the Russian economy fell by 4.5% in the same period. This situation is the result of three factors, the war between the two nations, the drop of the oil price and the sanctions of the West nations against Russia. Now Ukraine is in a situation which has to pay around 22% to borrow capitals to refinance its debt. This means that the state is blocked and the only way to refinance the debt is the intervention of the IMF or the European Union. Russia has lower interests because of the low debt. One of the best things Putin has done, is to pay back the debt to the Paris Club in the previous years. One of the advantages of the Russian economy, despite the overall bad situation, is the low public debt.
The biggest problem for Russia during this hard period is another one, the high fluctuation of the national currency against the Us dollar and the Euro. It is very important for Russia to have a stabile Ruble because much of the trade is with the European union and an instability on the currency would have a very bad impact in the commercial exchange between these countries.
For the next year economists expect the Russian economy to fall again from 1.6% to 1.9%. This will depend on the price of oil and gas on which the country so much depends. Regarding to the Ukraine nobody sees the end of the tunnel.
One of the key questions is: can the Russian economy survive to another year of sanctions without dropping even more? It definitely can’t. The effect of sanction on the Russian economy could be devastating. The diversification in the Russian economy is not to high. So It is very important for the two big countries to accelerate the peace process and the ceasefire, so they can take advantage from the acceleration of the European economy. In our opinion this is going to happen this year for real and we do not think that these two countries will be at the top of the list, of the investors problem, in the next years.