VDMA: Minsk 2 cannot be allowed to become a dead end!

The EU states have decided to extend the sanctions against Russia. They cannot be eased until the end of January 2017 at the earliest. VDMA is critical of this decision.

Various EU member states are becoming increasingly critical of the fact that the lifting of the sanctions is dependent on full implementation of the Minsk II Protocol. After all, Russia is not the only party responsible for putting the agreement into practice. VDMA is calling on policymakers to improve the situation and look for alternative solutions. “Minsk 2 cannot be allowed to become a dead end. The longer the sanctions go on, the greater the danger that Russia and Europe will drift apart permanently,” warned Thilo Brodtmann, Executive Director of VDMA.

The Russian economy is still suffering from a perfect storm of low oil prices, the ruble crisis and the sanctions. The country's trade with the world fell by around 35 percent last year, and the trend shows no sign of slowing. This also affects countries that have not placed sanctions on Russia. “When Russia's economy gets going again, European suppliers will have permanently fallen behind,” said Brodtmann.

However, German exports of machinery and systems to Russia already seem to have plateaued. “Exports to Russia fell by another 4.7 percent in the first four months of 2016, so the rapid decline seen in the sector as a whole over the last two years seems to have stopped for the moment,” predicted Ulrich Ackermann, Head of Foreign Trade at VDMA. “VDMA is expecting a fall in the single digits for 2016. The forecast could be even more positive if the oil price leveled off permanently at 50 or 60 dollars a barrel and the ruble exchange rate remained stable. But we are still a long way away from a resurgence of business.” Russia is currently the eleventh largest export market for German mechanical engineering, having slipped from fourth before the crisis.

The picture varied widely among the various segments of mechanical engineering between January and April 2016. Those segments that benefit from the Russian food embargo have seen a significant improvement – especially agricultural machinery (up 87 percent), food and packaging machinery (up five percent) and drive technology (up ten percent). The freefall in construction equipment and building material machines also seems to have stopped, with a 57 percent increase in this segment. Exports of mining machinery rose by 39 percent and of gas turbines by 51 percent. In contrast, there were significant losses in machine tools (down 39 percent), plastic and rubber machinery (down 36 percent), air handling technology and conveyor technology (each down 17 percent).

While Europe discusses the sanctions, Russia is setting up large-scale industrial development programs to try to reduce its dependency on imports and crude oil. But the country needs foreign expertise to achieve this. Russian Minister of Trade and Industry Denis Manturov and Minister of Economic Affairs Alexei Ulyukaev have visited Germany several times over the last few months to promote Russia as a business location. And this year's St. Petersburg Economic Forum in June was visited by more European companies and politicians than almost ever before.


Monika Hollacher
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