S&P revises Russia outlook to negative over Ukraine

Standard & Poor's revised Thursday the outlook on Russia's credit rating to negative from stable on rising political and geopolitical risks linked to the raging Ukraine crisis and accompanying Western sanctions. "Heightened geopolitical risk and the prospect of US and EU economic sanctions following Russia's incorporation of Crimea could reduce the flow of potential investment, trigger rising capital outflows, and further weaken Russia's already deteriorating economic performance," the rating's agency said in a report prepared before the European Union and Washington announced a new wave of sanctions on Thursday. S&P rates Russia as BBB, which is near the lower end of the investment grade ratings scale. Russia's economic growth slowed to 1.3 percent last year -- its worst performance since President Vladimir Putin first came to head the government in 1999 -- and is expected by most economists to register a similar performance this year. Russia's central bank this month hiked its benchmark interest rate by 150 basis points to 7.0 percent to help shore up the sinking ruble and stem the flow of investor interest away from the country's assets. The ruble has lost about 10 percent of its value against both the dollar and euro this year. S&P said that the "deteriorating geopolitical situation has already had a negative impact on Russia's economy" and warned that broader Western trade sanctions were a possibility. US President Barack Obama on Thursday signed a new executive order that would allow him to target specific sectors of the Russian economy should the Ukrainian crisis escalate. "In our view, these sanctions could further undermine Russia's economic growth prospects," S&P said. It added that there remained "a material risk that the conflict between Russia and Ukraine could extend beyond Crimea and that violence between pro- and anti-Russian protesters could spread to other cities in eastern Ukraine."