Sanctions could cause the Russian economy to contract 20% Q/Q: JPMorgan
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The United States and its allies continue to ramp up the economic pressure on Russia following the country’s decision to invade Ukraine. Here is a FOX Business roundup of actions taken against Russia thus far.
Temporary halting of Russian company stock trading on NYSE, Nasdaq
On Monday, the New York Stock Exchange temporarily halted trading of select Russian-based companies, including Mechel PAO American Depositary Shares, Mobile TeleSystems Public Joint Stock Company and Cian PLC American Depositary Shares.
Meanwhile, the Nasdaq said it would halt Yandex, known as Russia’s Google, and online retailer Ozon, as well as Nexters, QIWI, and Head Hunter Group.
Sources familiar with exchanges tell FOX Business that the halts, which can be used for unusual trading in any security, will allow time for officials to review the fast-moving developments in the Russia-Ukraine conflict that are impacting the shares.
Freezing Russian central bank asset transactions
In conjunction and cooperation with the European Union, Japan, the U.K., Canada, and others, the United States has effectively frozen financial transactions of Russian central bank assets held by Americans, a senior administration official told reporters during a briefing on Monday.
The intended effect is to cripple the Russian economy and use up the country’s “rainy day fund” as its currency, the ruble, plummets in value, the official said. That rainy day fund was built up to defend against economic consequences when Russia invaded Crimea in 2014.
According to the Treasury Department’s Office of Foreign Assets Control (OFAC), this is not a complete and total block of the central bank, as OFAC is authorizing certain transactions with Russia’s central bank that are “energy-related.” OFAC added that additional authorizations could follow if necessary.
Removal of select Russian banks from SWIFT
The European Commission, France, Germany, Italy, United Kingdom, Canada, and the United States issued a joint statement on Saturday that “selected” Russian banks would be removed from the SWIFT financial system.
SWIFT provides messaging services to banks in over 200 countries, and is controlled by the central banks of the G-10, including Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, the United States, Switzerland, and Sweden.
In addition, the statement noted that the group of countries would launch a “transatlantic task force” aimed at effectively implementing the financial sanctions, “step up” coordination against disinformation regarding the Russian invasion, and limit “golden passports” that allow wealthy Russians connected to the Russian government to become citizens of the countries.
On Thursday, the Commerce Department unveiled sweeping export controls from its Bureau of Industry and Security that would severely restrict Russia’s access to technologies and other items used by its defense, aerospace and maritime sectors.
Items targeted by the export controls include semiconductors, computers, telecommunications, information security equipment, lasers and sensors. In addition, BIS’s rule imposes stringent controls on 49 Russian military end users, which have been added to its entity list.
The European Union, Japan, Australia, United Kingdom, Canada and New Zealand announced that they would implement “substantially similar restrictions.”
Sanctions’ potential economic impact and Russia’s response
JPMorgan told clients in a research note reviewed by FOX Business on Monday that sanctions announced against Russia could have a “severe” impact on the country’s economy.
“We tentatively assume that Russia’s economy will contract 20% [quarter-over-quarter], saar, in 2Q, and for the year around 3.5%. But the margin of error for any such guesstimate is incredibly high at this point, and risks are skewed heavily to the downside,” the note reads. ” Moreover, we believe Russia’s growing political and economic isolation will curtail Russia’s growth potential in years to come and lower Russia’s trend growth to 1.0%, down from 1.75% previously.”
The bank’s researchers estimate that Russian inflation could stand at 10% at year-end, up from 5.3%, with risks heavily skewed to the upside.
In response to the sanctions, Russia’s central bank has raised its key interest rate to 20% from 9.5% to counter risks of rouble depreciation and higher inflation, ordered companies to sell 80% of their foreign currency revenues and restarted gold buying.
Fox Business’ Suzanne O’Halloran, Paul Conner, Ronn Blitzer and Adam Sabes contributed to this report