The geopolitical tensions between Ukraine and Russia have not only taken a toll on the lives of thousands of people, but are also expected to severely hurt the economies of both these nations. This is particularly true as the U.S. and the European Union have imposed a host of sanctions on Russia over its annexation of Crimea and for support of separatist rebels in eastern Ukraine.
Last month, the EU and the U.S. imposed fresh sanctions targeting the financial, energy and defense sectors of the Russian economy. Moreover, five major Russian banks have been banned from raising capital in the EU’s financial markets. To make matters worse, Russia retaliated against these sanctions by imposing a ban on food imports from the West (read: Russian Food Import Ban Takes a Bite Out of These Agricultural ETFs).
Apart from other nations, Finland – a member of the European Union – is getting crushed by the sanctions that EU and Russia have imposed upon each other. That is because Finland actually has a longer land border with Russian than the other 27 European Union members combined, while the two nations have deep economic ties as well.
In fact, Russia accounts for 10% of Finland’s exports and is the Nordic country’s third-biggest export market. The Russian import ban is expected to primarily hurt milk-based products from Finland.
Finland has already warned that these sanctions might lead to a crisis-like situation if they continued for a year and they may worsen its struggling economy. The country’s economy shrank 1.2% last year and 0.4% during the first three months of the year, as key industries including mobile phones struggled amid weak demand.
In fact, many believe that Finland is facing a severe economic crisis following the decline of Nokia, one of the largest companies in the nation. Finland’s paper and pulp industry is also languishing. The fallout is weighing heavily on Finland’s growth and unemployment.
“It seems that getting back to the GDP volumes of 2008 will take 10 years. It’s like a double recession,” says Pasi Sorjonen, an economist at Nordea.
Though the country’s GDP expanded marginally last quarter, many fear that the current crisis might again drag down the economy.
With little clue about how long the sanctions will last or whether more are in the cards, investors need to cautiously play this Nordic country. For that investors should keep a close eye on the sole ETF focused on the nation – iShares MSCI Finland Capped Investable Market Index Fund (BATS:EFNL).