The impact of EU sanctions on Russia on Italy will be worse than as assumed in August (between 0,9 and 2,4 billion euros). The alarm comes from Sace, the Italian insurance-financial group active in export credit, which has published a "Focus On Europe-Russia: a trade war at the gates?" edited by the Economic Studies Office of Sace itself.
In the document, Sace reviews the historical evolution of sanctions. Those adopted in August by the United States and the European Union prompted the Kremlin to formalize a temporary ban on the import of some agricultural and food goods (meat, fish, dairy products, fruit and vegetables) from Europe and the United States. In the period from July to September, Russia passed sanctions that include a formal ban on European entities from conducting commercial and financial activities with some Russian banks and companies. Through these sanctions, export activity towards some sectors of the Russian economy has also been further restricted, in particular military, dual use and energy.
As for the Italian exports to Russia in the two-year period 2014-2015, Sace expects two possible scenarios, of which two are the main ones.
Basic scenario (probability of occurrence 50%): instability persists in eastern Ukraine, with renewed clashes between the two factions and encroachments by the Russian army after the elections at the end of October, but only slightly harsher sanctions. An easing of tensions is assumed at the beginning of 2015 and a progressive – but slow – withdrawal of sanctions during the year. In this scenario, Italian exports to Russia would register a contraction of around 10% in 2014 and 7% in 2015 with an overall loss of exports of 1,8 billion in the two-year period. The sector most affected would be that of instrumental mechanics, with a loss of sales in Russia estimated at about 650 million in two years.
Alternative scenario (probability of occurrence 30%): escalation of tensions between Russia and Ukraine in the aftermath of the October elections. Russian troops resume border crossings in support of the separatists, significantly increasing control over Ukrainian territories ("hybrid war"). In this case, there would be a tightening of European and US sanctions, with an expansion of the pool of goods affected by the export ban and the inclusion of other banks/public companies and individuals affected by the sanctions. In this hypothesis, the Russian countermeasures affect the import of automotive, cruise and aviation goods. In this scenario, a fall in Italian exports to Russia would be generated (-13% in 2014 and -17% in 2015), with a total loss of 3 billion in the two-year period. As in the previous scenario, the most affected sector would be the one of the instrumental mechanics with 1,1 billion less exports in the two-year period.
The economic relationship between Italy and Russia does not stop at exports alone. In the event of a possible trade war, our country would lose both on Russian investments in Italy (Russian companies quadrupled their presence in Italy in the period 2005-2011), both in the tourism sector where in 2013 the revenues from relations with Russia amounted to 1,3 billion.
SACE forecasts that the persistent tensions between Moscow and European countries and the possible recession of the Russian economy, partly deriving from the tensions, could expose Italian companies active in Russia to three main risks.
First: reduction in the demand for Made in Italy goods due to the foreseeable drop in consumption and private and public investments.
Second: acts of retaliation against foreign operators (for example expropriations), coming from countries particularly exposed in the current political conflict. Already in recent weeks news has emerged of a bill under discussion in the Russian parliament which provides for the Russian courts to authorize the confiscation of foreign assets in Russian territory. At the moment, the bill does not seem to benefit from government support.
Third: Restrictions on currency conversion and transfer. The outflow of capital from the country, also favored by the worsening perception of country risk by investors, is contributing to pressure on the ruble exchange rate, requiring huge interventions by the Central Bank. This trend has fueled rumors on the possible introduction of capital controls in Russia, aimed at containing the outflow of hard currency from the country. The adoption of restrictions on the conversion and transfer of currency could make the payment process for foreign goods is difficult, with a negative impact on exporters to Russia. At the moment the Central Bank has ruled out the possibility of adopting similar measures.
Equally full-bodied speech deserves the theme of imports from Russia, and in particular on what would be the effects of a reduction in gas supplies on the Italian economy. Italy satisfies 30% of its gas needs through Russian supplies; this year the difficult Libyan situation has forced a remodulation of quotas and so Italy has used Russian gas for 40% of its needs. If as a countermeasure Russia decided to cut gas supplies, there would certainly be negative effects in Italy but the supplies would be compensated with others from different countries. The certain effect of a possible reduction in gas supplies, especially if contextual to the peak period in winter consumption, would be an increase in the energy bill.
Despite the current phase of uncertainty, Russia remains a market with high potential for Italian companies. The Italian presence is consolidated (there are around 400 companies and eight banking institutions in the country) and the Italian market share in the country has remained constantly above 4% in recent years. The main opportunities offered by the Russian economy are attributable to the growth of the raw materials sector (the country expects significant investments in the oil & gas and mining sector, whose implementation is currently affected by the country's phase of uncertainty) and infrastructure (the government has approved substantial appropriations for the modernization of the road and railway network of the country). Even sectors with relatively small export shares show dynamic growth rates and ever-increasing penetration of the Russian market (eg cosmetics and pharmaceuticals).
