Since the beginning of the conflict, an increasing number of publications dealing with the conflict appeared. They predominantly concentrate on the effects of the conflict on the Russian economy (e.g. Gurvich and Prilepskiy,2015; Vercueil, 2014
etc.). This is natural since the economic impact on Russia is generally considered as rather heavy compared to the Western countries and the political behaviour of Russia is of higher interest (Deutsche Bank Research,2014). Existing empirical anal- yses apply various tools: (macro)econometric growth forecasting (e.g. see Rautava,
2014; Vercueil,2014), computable general equilibrium (CGE) modelling (Barry,2014; Kutlina-Dimitrova, 2017), and input-output modelling (Christen et al., 2016; Oja,
2015).
Macroeconomic analyses focus primarily on growth forecasts, curtailing initial growth forecasts of Russia to a different degree (Christen et al., 2016). In case of a further conflict escalation and a low variant of oil prices a Russian economy was supposed to contract by 3% in 2015 (Vercueil,2014)4. Economic sanctions’ costs up to
4Besides a drop in GDP in 2015, increased inflation and worsening of other macroeconomic indi-
10% of GDP (Shirov, A.A., Yantovskiy, V.V., Potapenko, V.V.,2015; Folkerts-Landau,
2014) and a resumed growth of 1.5% in the medium perspective were initially pre- dicted for Russia, whereas sanction-specific drop in real GDP would amount to 1- 1.5% as well as a cumulative impact of 9 percent of GDP in the mid-term (IMF,2015). Tuzova and Qayum,2016anticipated a contraction of GDP by 19% and a rate of infla- tion of almost 20% in the next two years, after the start of the conflict. It is becoming clear now, that such gloomy prospects for Russia, as well as its potential failure to preserve the macroeconomic equilibrium longer than until 2016, in case the Central Bank of Russia (CBR) keeps trying to maintain the standard of living, squandering its reserves, did not hold (World Bank,2017).
However, enduring sanctions continue to weaken the Russian economy by re- ducing both domestic and foreign direct investment as well as Russian stock returns, and significantly continue to increase a volatility in the sectoral indices. However, it ought to be said that the direct effects of sanctions on the Russian economy are not as detrimental as is the deteriorating price of oil (Dreger et al.,2016; Hoffmann and Neuenkirch,2017). However, it is simultaneously not possible to explain the drop in GDP only through the decline of oil prices. A part of Russian GDP decline is neces- sarily sanctions-driven. Even when being estimated 3.3. times lower than the impact of the oil price shock (Gurvich and Prilepskiy,2015), it should not be neglected due to its sustainable impact on the Russian economy.
Because of highly strong trade ties with senders, Russia’s trade loss in just two years, 2014 and 2015, amounted to $US 62.94 billion (Hinz,2017). The trade ban also led to a depreciation of the real exchange rates (Kholodilin and Netšunajev,2019), although the depreciation was primarily caused by the decline of oil prices (Dreger et al.,2016). Aganin and Peresetsky, 2018show that imposed sanctions increased the volatility of the ruble exchange rate and its dependence on oil price volatility. Although, as the authors claim, the impact of sanctions evaporates with time, as the Russian economy becomes more and more adjusted. One of the possible reasons for this notable adjustment process was a switching to a floating exchange rate regime, undertaken by the CBR in November 2014.
according to the World Bank,2017, the poverty headcount ratio at national poverty lines (% of popula- tion) increased from 10.8% in 2013 to 11.2% in 2014 and by over 2% the following year, reaching 13.4% in 2015
Investigations on a micro-level, exploiting a “smart” nature of the sanctions, find that sanctions negatively impact financial health of the targeted firms and increase a firm exit probability. An average directly sanctioned or affiliated company lost around 25% of its operating revenue and 30% of employees during the period from March 2014 until December 2016, compared to non-sanctioned counterparts (Ahn and Ludema,2017). A study, evaluating risks perception, associated with sanctions, by Russian manufacturing companies, concludes that sanctions can be catastrophic not only for directly targeted firms, but also for top-performing, globally integrated firms with firm ties to the EU and/or Ukraine (Golikova and Kuznetsov,2017). It makes the recent sanctions shock different from a usual cyclical crisis which would eliminate the least efficient firms, having a creative destruction effect. The sanctions in place also resulted in a significant fall in Russian stock prices and an increase in volatility and heavy-tailless of stock returns in the aftermath of sanctions (Naiden- ova and Novikova,2018; Ankudinov, Ibragimov, and Lebedev,2017).
However, one should not ignore some increase of economic activities related to the demand pull from investments into Crimea’s assets and infrastructure. This shock, introduced to a system which rests in equilibrium, might result in an increase of Russia’s GDP by 1.42%, an increase of production in all sectors by 19.3 bln Dollar, an increase in a trade balance by 699.2 mn Dollar, a decrease of market prices by 0.6%, and finally a decrease of price of all production factors (Barry,2014).
Several studies, dealing with the welfare losses on both conflict sides, agree on more serious consequences for Russia than for the Western economies and predict only minor losses in GDPs of the EU (Deutsche Bank Research,2014). For instance, Kholodilin and Netšunajev,2019do not find a strong evidence of an adverse effect of sanctions on the growth rate of Euro area’s GDP. However, considering a modest growth of the EU economies, a danger of the growth reversal, which can be easily turned into stagnation, exists. Moreover, it is expected that Baltic countries, espe- cially Lithuania, Finland and Poland face the largest losses, although Germany re- mains one of the biggest exporters to Russia (Boulanger et al.,2016; Giumelli,2017; Oja,2015).
An Austrian study on the macroeconomic effects of the current trade conflict re- ports a fall in value-added of EU-27 by 0,2-0,9% (depending on the scenario) and the
negative employment effects of 0,2-1,1% (depending on a scenario). The negative ef- fects for Germany can add up to somewhat 1.2% of GDP and up to 500 thousand un- employed in the worst-case scenario. The realized impact of the conflict in terms of value-added amounts to 6.65 billion Euro (Christen et al.,2014). A successor study, released by the same researcher group, predicts even gloomier consequences for the German economy (Christen et al.,2016).
It is known from the literature, that the main areas of EU exposure to the Rus- sian sanctions are the food industry, the textile industry, the pharmaceutical indus- try, the electronics industry, the machine tool industry and the industry of trans- port means (Havlik, 2014). The industries listed above are in peril, mostly, in the long term, although financial institutions may conceivably sustain large short-term damage (Shirov, A.A., Yantovskiy, V.V., Potapenko, V.V.,2015). A ban on agri-food products is supposed to cause the EU-28 a welfare loss of 126 million Euro, which is remarkably below an expected welfare loss in Russia that amounts to about 3.4 billion Euro (Boulanger et al., 2016). Agriculture, engineering and energy sectors are the most vulnerable sectors of the EU in terms of a long-term negative sanctions impact, whereas financial restrictions are even more destructive in the short term: European financial institutions can lose up to 10 billion US Dollars annually, caused by a reduction in interest payments (Shirov, A.A., Yantovskiy, V.V., Potapenko, V.V.,
2015).
There have been warnings for Europe concerning any premature decision-taking resulting into observed ineffectiveness of the sanctions (Vries, A.W.d., Portela, C., Guijarro-Usobiaga, B.,2014). The literature indicates the institutional weaknesses of EU foreign policies undermined by the current crisis (Sjursen and Rosén,2017).