Politics trumps & thumps economics by Chris Weafer

~~Politics trumps & thumps economics
 “Sanctions and boycotts would be tied to serious political dialogue”
Daw Aung San Suu Kyi
 · We have cut our growth forecast to 1% for 2014, and revised some other macro forecasts partly because of the uncertainty and disruption caused by the Ukraine crisis but also reflecting the continuing slowdown in the economy coming into 2014.
· We highlight the risk of earnings revisions across the domestic sectors in the equity market which detracts from otherwise attractive PE valuations. LUKoil (LKOD LI) is added to our Top Ten Russia Our end year ruble forecast rate of R/$36.0 remains unchanged.
· Any dip in the price of Sovereign Eurobond issues is a buying opportunity.
 Economy at risk from political crisis. The headlines concerning Russia are dominated by the events in Ukraine and the threat of sanctions. Despite the soft sanctions approach so far, the situation remains dangerous, particularly since Crimea’s parliament voted to join the Russian Federation and to hold a referendum on 16 March. This represents a clear danger to sentiment towards Russia as it is difficult to see Moscow doing anything other than accepting Crimea. The US and EU are very likely to threaten further sanctions then.
 We cut our GDP forecast. Because of the weaker ruble, down more than 10% against both the dollar and the euro as we go to print, and the clear damage to confidence amongst consumers and businesses, we have cut our economic forecasts for this year. Forecast GDP growth is reduced to 1.0%, down from 1.9% previously and lower than last year’s 1.3% growth. The main damage is likely to come from higher inflation, tighter money markets, slowing consumer activity and a second year of declining investment spending.