Tougher sanctions against Russia a double-edged sword fear exporters

Photo: athewma / Stock.XCHNG

Fragile Czech growth could be wiped out if the Ukraine crisis take a worse turn and sterner sanctions are imposed by the European Union, including the Czech Republic, and Russia retaliates. Exports of Czech machinery and engineering equipment could be threatened and Russian tourists could head elsewhere.

Photo: athewma / Stock.XCHNG
The Association of Czech Exporters have warned that broader sanctions against Russia by the EU, including the Czech Republic, would not leave the Czech economy unscathed, threatening, the association told news website iDnes, between 30 and 40 thousand jobs, not least in the car making industry. New sanctions against Russia, response for the country’s incursion into Crimea and apparent annexation of the peninsula by Russia, were introduced on Monday.

So far, they are not far-reaching, pointed at a relatively small group of individuals. But if they are broadened in the case Russia does not back off in Crimea, the impact would be felt, say analysts, by countries in the EU and – with Russia as a major provider of natural gas and oil – could impact the global economy. Chief economist for Unicredit bank, Pavel Sobíšek, maintained that an interruption of deliveries oil and natural gas, for example, would flatten the Czech Republic’s expected growth of around one percent and could push the country into recession. He told iDnes that milder sanctions by the union would see the EU overall lose 0.5 percent of GDP growth, while for the Czech Republic the number could be double. Industry & Trade Minister Jan Mládek was slightly more optimistic, suggesting the economy would suffer by 0.5, remaining above the water.

Of course, much remains up in the air, and whether the EU, including the Czech Republic, will agree on tougher sanctions at all, as it is clear some countries will suffer a lot more than others. As Russia’s largest trading partner, the European Union has at a lot to lose and would feel the impact of import/export bans; almost 50 percent of exports to Russia from the EU are machinery and transport equipment. The Czech Republic does much of its business with Russia in this sector – the obvious success story being Škoda Auto, the largest private company in the Czech Republic which also has an assembly plant in Russia.

The economic bite, if tougher sanctions are introduced, could also affect tourism numbers in the Czech Republic. Recent years saw a boom in the number of Russian visitors, now second only to tourists from neighbouring Germany, in total numbers. Protracted sanctions or a trade war with Russia would almost certainly see a drop. Tourism analyst Jaromír Beránek told iDnes that last year 759,000 Russian visitors came to the Czech Republic. He said that a halving of that number would lead to the loss of around 20 thousand jobs. Russians accounted for 51 percent of tourist spending in shops in Prague and Karlovy Vary, according to one source.

While the EU has condemned Russia’s actions in Ukraine and Vladimir Putin’s gambit to bring Crimea back within the fold, it is unclear how far it can go with sanctions before itself feeling the bite.