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Russian assets tank, leading global market sell-off after Putin acts

A child is seen inside a bus arranged to evacuate local residents, in the rebel-controlled city of Donetsk, Ukraine February 18, 2022.

Alexander Ermochenko | Reuters

Sanctions expected

It comes after Putin announced Monday evening that he would recognize the independence of Donetsk and Luhansk and signed a decree calling for forces to enter the two enclaves of the Donbas partially held by Moscow-backed separatists.

The United Nations Security Council held an emergency meeting in New York on Monday night as the long-simmering conflict entered a new phase. US President Joe Biden signed an executive order banning new investment, trade and financing from the US to the two breakaway regions.

UK Health Minister Sajid Javid told Sky News on Tuesday morning that “the invasion of Ukraine has begun.”

Broader economic sanctions are expected to be announced by the White House on Tuesday and European foreign affairs ministers are gathering in Brussels to discuss the EU’s next steps.

Neil Shearing, group chief economist at Capital Economics, said in a note Tuesday that the impact on Russia’s economy will depend in large part on the response of Western governments.

Russian President Vladimir Putin delivers a video address to the nation, following the initiative of the country’s lower house of parliament and security council to recognize two Russian-backed breakaway regions in eastern Ukraine as independent entities, in Moscow, Russia, in this picture released February 21, 2022.

Alexey Nikolsky | Sputnik | via Reuters

“Its balance sheet is stronger than at the time of the 2014 Crimea crisis – external debt is lower, and financial linkages with other major advanced economies are smaller,” Shearing said.

“The imposition of sanctions will still have an impact on the economy, but all other things being equal this is likely to be smaller than in 2014-15 (when GDP fell by ~ 2.5% and the country experienced a financial crisis).”

Berenberg Chief Economist Holger Schmieding said the big uncertainty remains as to whether Putin will move Russian troops further into the Donbas – beyond areas held by pro-Russia groups – encroaching on Kyiv-held free Ukraine.

“If he stops there, sanctions would weaken the Russian economy over time with very limited impact on the advanced world. Markets would return to normal after a while,” Schmieding said.

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