Russia Sanctions Threat Seen Receding Amid Ukraine Peace Talks

Russia is less likely to face further sanctions from the U.S. and the European Union as President Vladimir Putin is taking steps to ease tensions, a Bloomberg survey of economists showed.

The U.S. will hold off on measures targeting Russian industries, according to 83 percent of respondents in a survey of 23 economists, compared with 66 percent last month. The EU will refrain from sanctions according to a record 96 percent, up from 84 percent in May. The survey was conducted June 20-25.

The risk of further sanctions is seen abating even as U.S. and European officials warn of stiffer measures if Russia fails to do more to de-escalate tensions in Ukraine. Putin this week, backed a cease-fire proposed by his Ukrainian counterpart Petro Poroshenko and Russian lawmakers yesterday rescinded authorization of using force in the neighboring country.

“We observe growing signs that Russia isn’t interested in further escalation in fighting in Eastern Ukraine,” Tatiana Orlova, senior economist in Royal Bank of Scotland Group Plc in London, said by e-mail. “It seems to us that Russia is looking for a graceful exit from the geopolitical crisis, and is taking steps to avoid further sanctions.”

The ruble has lost 2.6 percent against the dollar this year, the fifth-worst performer among 24 emerging-market currencies tracked by Bloomberg. It strengthened 3.4 percent this month, the best performance in the group.

Ukraine Talks

Putin asked for an extension of Ukraine’s cease-fire, which ends tomorrow, during a phone call with Poroshenko, German Chancellor Angela Merkel and French President Francois Hollande yesterday, according to a Kremlin statement. The four leaders agreed that conditions must be developed to monitor the truce and hostages in Eastern Ukraine must be released, according to the statement. Four-party talks will continue today, the German government press-office said yesterday.

While the U.S. and EU have imposed travel bans and assets freezes on people and companies, the Obama administration is weighing further measures to pressure Russia. Any sanctions will be more effective if Russia’s main trading partners cooperate in the effort, Josh Earnest, White House press-secretary, said yesterday.

“Energy ties to Russia simply restrict the room for maneuver for various European governments,” Wolf-Fabian Hungerland, an economist at Berenberg Bank in Hamburg, said in an e-mailed answer. “Some local bans on Crimean products may come, however. Although this will remain economically negligible.”

Recession Risk

Even before the sanctions, Russia was struggling to boost growth in its $2 trillion economy as consumer demand failed to make up for sagging investment. Gross domestic product grew 0.9 percent in the first quarter from a year earlier, compared with 2 percent gain in the final three months of last year.

The government estimates gross GDP will expand 0.5 percent this year after 1.3 percent growth in 2013, the slowest in four years. That matches the median estimate of economists in a separate survey.

The probability of the Russian economy moving into recession within the next 12 months decreased to 40 percent from 50 percent last month, according to a separate survey.

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