Fitch Ratings Cuts Russia’s Credit Outlook To ‘Negative’ Ahead Of G-7 Meeting

Prior to President Obama arriving Monday at 1:30 PM to attend the G-7 meeting, Fitch Ratings downgraded Russia’s credit outlook to “negative” in anticipation of further sanctions. The move by Fitch Ratings follows Standard & Poor’s, who also downgraded their outlook of the Russian economy last week.

The ratings agency said the Russian economy was showing danger signs before the U.S. and EU implemented sanctions after Putin officially moved to annex Crimea, following a referendum that went some 95 percent for Russia.

“Growth slowed to 1.3 percent in 2013 and investment is contracting,” Fitch said. The firm lowered its forecast for Russian growth to less than 1 percent for this year, while Standard & Poor’s cut its growth estimate to just 1.2 percent.

The Russian exchange has taken more than a 10 percent hit since the Crimea crisis began, with the two rating agencies underscoring the economic ramifications of Putin’s decision. The Russian 10-year government ruble bond fell, forcing the yield to increase by 35 basis points, or 0.35 percentage point, up to 9.66 percent. The ruble declined 0.1 percent to 42.6165 against Bank Rossii’s dollar-euro basket by 1:07 p.m. in Moscow, extending this year’s decline to about 10 percent.

“If corporate financing needs cannot be met in the markets, the authorities could draw on ample foreign-currency reserves to provide foreign-currency liquidity, through the state-owned banks or from the Reserve Fund,” Fitch said.

President Obama will meet with European Union officials regarding a future coordinated action to increase even more pressure on Russia. EU leaders, met prior to the G-7, were expected to agree upon a unified position. Now, all economists’ eyes will be on Moody’s Investors Service, who currently rate Russia Baa1, or the third-lowest investment grade. However, thus far, they have allowed Russia to continue with a stable outlook.

For all intensive purposes, as Germany Prime Minister Angela Merkel noted, the G-8 doesn’t exist anymore. Russia has been kicked out and no conceivable future action will change that. Emboldened by international victories, Russia has, for the time being, resisted predictions of an economic downturn in Russia.

“I see no signs that Russia’s ability to service its debt is worsening,” Deputy Finance Minister Alexey Moiseev told Bloomberg by phone. He claimed the budget was being carried out without a deficit, and that Russia had a two-month budget surplus of 30.5 billion rubles, or 0.3 percent of gross domestic product.