Many investors were scared off earlier this year, when the conflict in Ukraine escalated and the European Union took to economic measures and sanctions to counter Vladimir Putin’s expansion into Crimea. Naturally, at the time, investing into the Russian economy and business world seemed like a bad idea. But the Russian economy is now showing great signs of recovery, despite EU measures and sanctions. At the height of the conflict, the Ruble had falled 11% in comparison with the US Dollar. Recent reports show that the Ruble has since recovered, and is now only 4% weaker than it was prior to the conflict.
The main reason for the recovery? It seems that, at least as far as Russia and its business is concerned, worry over the situation in Ukraine has diminished. The European Union is not showing signs of further aggressive trade sanctions, and thus, many have resumed business ties within Russia. According to CNN, the Chief Economist of East Capital, Marcus Svedberg has stated that “The situation in Ukraine has not been solved but the worst case scenario hasn’t played out.”. That worse case scenario was unlikely to begin with, as Russia still holds a firm grasp on the European Union through its gas supplies, with many European countries relying exclusively on Russian gas importation. Thus, the financial sanctions of the EU were more symbolic than anything, and this is precisely what the recovering Ruble is highlighting.
Graph showing off the evolution of the Ruble in 2014 – Source: CNN
Svedberg added that “I can’t say there’s no risk of further sanctions. But the likelihood has fallen”, referring to the still on-going military conflicts in Eastern Russia. Despite the tensions, Russian president Vladimir Putin and newly elected Ukrainian president Petro Poroshenko have begun talks in order to stabilize the region and put an end to the fighting. Thus, while its future is still seemingly unstable and uncertain, the Russian economy seems to be regaining its footing, as investors lay worries aside.
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