Moody’s cut Russia’s credit rating outlook to “negative” Friday, a sign of a possible coming downgrade, citing the threat to the Russian economy from its involvement in the Ukraine conflict.
Moody’s held Russia’s overall rating at Baa1, in the low range for investment-grade bonds.
But it warned that the spread of the Ukraine conflict from Crimea to the country’s eastern border with Russia has raised the dangers of “geo-political event risk” for Moscow, including from western sanctions.
It said that the lack of a strong plan and reforms in Moscow to address the country’s weak economy also underpin the outlook cut. It said Russia’s annual growth outlook has fallen to 1.7 percent for the next five years from previous forecasts of three percent.
Moody’s said it did not cut the country’s sovereign rating because it does not see the current level of conflict in Ukraine further pressing Russian growth lower.
But if the conflict worsens, Moody’s said, Russia could be vulnerable from toughened western sanctions, capital flight and a loss of market access by Russian banks and companies.
“Moody’s considers the situation in Eastern Ukraine compared to Crimea as more difficult, given the complicated background of separatist forces and the outbreak of violence,” it said.
“Sanctions against Russia so far have been mainly targeted against individuals, but the G7-countries have reiterated the possibility of further sanctions targeting specific sectors of the economy.”
Moody’s said it would also consider downgrading Russia’s rating “if the domestic growth outlook were to deteriorate further and, in particular, if lower growth were to negatively affect Russia’s fiscal and external accounts.”