That the European Bank for Reconstruction and Development believes that Russia is anything but “an island of stability”, being instead a high beta economy that will suffer substantially if the crisis in Europe worsens:
Russia’s economy is more vulnerable to the effects of the euro zone’s fiscal and banking crises as commodity prices fall, the European Bank for Reconstruction and Development said Wednesday.
Starting in October, the EBRD slashed growth forecasts for eight economies in Central Europe, or CEB, and the Baltics and seven economies in Southeastern Europe, or SEE, citing their close trade and financial links to the euro zone.
With strong growth elsewhere in the global economy supporting prices for oil and other raw materials, the EBRD’s forecasts for Russia were largely unchanged. But in its latest report on the outlook for the economies in which it invests, the bank said the impact of the currency area’s prolonged crisis will spread further east and drag Russia down.
“The negative spillovers are reaching east, and to Russia in particular through two main channels: lower commodity prices and a general reduction in risk appetite,” said Piroska Nagy, the EBRD’s director for country strategy and policy.
You can see the channels work in real time. Right now oil is being buffeted by two conflicting forces: developments in the Eurozone involving primarily Spain and Italy, and developments in the Middle East involving Iran and Syria. Bad (good) news about the situation in Spain drives down (up) the price of oil; increased (reduced) fears that Iran will do something aggressive in the Straits of Hormuz drives up (down) the price of oil. And the Russian stock market and the ruble move nearly in lockstep with these movements.
Countries in central Europe and Scandinavia as well as commodity-exporting African countries Ivory Coast and Mozambique are also among the 17 economies classed as being at “extreme risk”, while the BRICs quartet of big emerging market nations Brazil, Russia, India and China is also highly exposed, the survey showed.
. . . .
Arab Spring countries Tunisia, Egypt and Libya follow closely behind, while Russia, Brazil and India were also tagged with a high exposure to the euro zone crisis.
Of the BRIC group of major emerging countries only China was ranked with no more than a medium exposure to the euro zone.
In other words, Russia will suffer substantially if things go pear shaped in Spain (as they are likely to do, IMO, given the daily blob like growth of the problem with regional bailouts, bank problems, and a looming deepening of the recession), without the consolation of pleasant weather and nice beaches.