Russian Government Projects Sanctions, Declining Oil Prices, Will Lead To Recession In 2015
Russia's own government is projecting that its economy will slip into recession next year. How that will impact Putin's current belligerence remains to be seen.
The Russian Government is saying that it expects the nation’s economy to enter a recession in 2015 thanks to a combination of sanctions from the West over the fighting in Ukraine and falling oil prices:
MOSCOW — After months of insisting that Russia could weather sanctions and plunging oil prices, Moscow has for the first time acknowledged that the economy would fall into a recession next year.
The Ministry of Economic Development, which publishes the government’s economic outlook, on Tuesday revised its forecast for 2015 to show a contraction of 0.8 percent, compared with a previous projection of 1.2 percent growth.
The ruble dropped against the dollar, having opened at 52 to the dollar and slipping to 53 in afternoon trading on Tuesday. That continued its nose dive in recent months, driven by Russians’ fears of economic isolation and their eagerness to change rubles into dollars or euros to move wealth out of the country. So far this year, the ruble has fallen more than 40 percent against the dollar.
The Russian stock market index Micex also dropped on the announcement, but it regained the loss later in the afternoon.
Also boding ill for the Russian economy was the announcement on Monday by President Vladimir V. Putin to scrap plans for South Stream gas pipeline, a grandiose project that was once intended to establish the country’s energy dominance in southeastern Europe but that instead fell victim to Russia’s increasingly strained relationship with the West.
The Wall Street Journal has further details:
Russia’s Economy Ministry warned that the country will slip into recession next year and the ruble will remain weak, in the government’s strongest admission yet of the depth of the damage wrought by the drop in oil prices and Western sanctions.
While many private and foreign economists have been warning of a contraction for weeks, the government had stuck to its forecasts that Russia would eke out slow growth next year. But the sharp drop in oil prices—which has knocked the ruble to a record low of 54 rubles to the dollar on Tuesday—has dashed remaining hopes.
The latest forecast drew quick criticism from the Finance Ministry which called it ‘too gloomy’ and said it could be revised. A few hours after being published, the report disappeared from the Economy Ministry’s website in a move a spokesman said was ‘technical.’
The Economy Ministry said Tuesday it sees the economy shrinking by 0.8% in 2015 compared with earlier expectations for recovery in economic growth to 1.2% from around 0.5% this year. A month ago the central bank called for zero growth next year.
The new forecast comes as Russia is on track to post its weakest growth since the global financial crisis this year, pressured by the penalties imposed by western countries after Moscow’s annexation of Crimea and its alleged support of rebels in Eastern Ukraine. The Kremlin denies backing the rebels.
Plunging oil prices are taking their toll too. The ruble tumbled to a record low against the dollar on Tuesday and is down nearly 40% year-to-date following the recent dive in the price of oil below $70 a barrel from more than $100 in the summer. Oil and gas exports are Russia’s main source of foreign-currency revenues.
A contraction in GDP next year would be the first time the Russian economy has shrunk since 2009.
“We changed our forecast from growth to recession about two months ago due to negative dynamics in investment and declining oil prices. Our forecast envisages a 1.5% contraction in the economy next year,” said Vladimir Osakovsky, chief economist at the Bank of America Merrill Lynch in Moscow.
“I think that Russia’s economy is vulnerable to three sorts of crisis—structural, conjectural and geopolitical,” said Deputy Economy Minister Alexei Vedev.
The Economy Ministry said it had previously expected some respite in terms of external pressure on the Russian economy by mid-2015 but now it expects the Western sanctions to still be in place by 2016.
The ministry lowered an average 2015 oil price forecast to $80 per barrel from $100 per barrel. Such a revision is expected to keep an average ruble rate in 2015 at 49 per dollar compared with earlier expectation of 37.7. The real effective ruble rate is expected to weaken by 13.5% next year.
(…)
Capital investment is now seen contracting by 3.5% next year versus an earlier call for 2% growth. The economy ministry also lowered forecasts for households’ wealth. It sees real disposable incomes contracting by 2.8% next year compared with previous expectations for 0.4% growth. In another sign of economic crisis, 2015 unemployment rate is now seen reaching 6.4% compared with previous forecast of 6.1%.
Looking further, the Economy Ministry expects the GDP slump to reach the bottom in mid-2015. Mr. Oreshkin said the current economic deterioration was akin to 2009 and under an optimistic scenario the economy will rebound and grow by 2.5%-3% in 2016.
In addition to this gloomy forecast for the future, the twin impacts this year of both sanctions and the ongoing collapse in world oil markets, which has led, among other things to the aforementioned collapse in the value of the rouble, has caused Russia to drop from the eighth biggest economy in the world to, according to an estimate in The Telegraph, the point where it ranks somewhere down in the teens with an economy the equivalent of Spain’s and having been surpassed by nations such as Italy, India, Canada, and Australia. Obviously, much of this could change if oil prices go back up, but for the moment the trends both in terms of energy prices and sanctions are both moving in directions that are detrimental to the Russian economy, and that’s having an impact on the Rouble on world markets that if further harming the Russian economy, especially since it is serving to make any effort by Russia to purchase goods overseas more expensive thanks to unfavorable exchange rates. If those trends continue, then it’s likely that the forecasts for this recession to be a short one will likely prove to be optimistic, but it’s far too early to tell that at this point, especially since energy prices could easily swing back in the other direction on a moment’s notice.
Over at National Review Nat Brown dissects the grim numbers further:
While the country has sufficient reserve funds to weather the short-term storm, the medium-to-long term is another question entirely, says Natasha Udensiva, a managing partner at Eurasia Energy Associates and a lecturer in international affairs at Columbia University. How long might the Russians be able to maintain their current stance? “They say they’ll be fine for two, three years,” Udensiva tells NRO. “I think they’ll be fine for at least one year and a half. Despite this huge inflation and all the terrible things going on in the country, they still have a lot of assets.”
A large factor in the ruble’s erosion of value has been the fall in global oil prices, which have declined steadily since the summer and fallen off even quicker in the past couple weeks. A large part of the currency’s dive is connected to the markets’ view of Russia’s economy as dependent on the price of oil, and Russia’s economy is pegged to high oil prices. Leon Aron, resident scholar and director of Russian Studies at the American Enterprise Institute tells NRO. “According to Russian and Western economists, Russia can balance the budget only at $117 a barrel; the national economy can only grow at $92-93 a barrel; and it goes into a recession at $80 or less.” As of this writing, the price hovers around $70 a barrel.
Sanctions imposed on Russia by the United States and the European Union on top Russian-government officials, state-controlled oil companies, and major Russian banks are keeping the pressure on its economy — as much through perception as practical value. “Russian economists call them ‘gray’ sanctions,” Aron says. “That is, they create a sensibility, one very damaging in the mid to long run.” One of their particularly damaging effects is that Russian corporations, even those not directly affected by the sanctions, are now all but unable to borrow money from Western banks. Meanwhile, the country has $300 billion in corporate debt maturing over the next two years, and it’ll need to be refinanced. Udensiva agrees: “The sanctions are really squeezing them. There are a lot of projects they have to put on hold — mega projects — because they have absolutely no cash flow.”
Even without the external pressure of sanctions and cheap oil, Russia’s economy is hardly healthy. Rife with corruption and cronyism, lacking a true free market and or functional infrastructure, the economy has been headed for trouble for quite a while. According to Udensiva, economists had been predicting a decline well before the crisis in Ukraine. Only high oil prices had papered over the problems, she says, and fundamental reforms to the economy (such as a more independent legal system, less state control of industry, and lower levels of subsidies) are necessary.
As always, of course, the big question about news like this is what, if any, impact any of this might have on Russian policy in Ukraine and elsewhere in the world going forward. On at least some level, after all, it would seem as though it would be difficult for Vladimir Putin to keep his current belligerent tone and policies in place in the face of declining economic conditions inside Russia itself. Obviously, if the Kremlin chose to, it could continue funding the Russian military as it wished without regard to the state of the economy but, at some point, the economic chickens would come home to roost, including the possibility of internal instability should the economic deteriorate to the point where it begins to cause real pain for the Russian people themselves. More importantly, a declining Russian economy puts the lie to any claim on Putin’s part that Russia should be treated like a First World nation and undercuts whatever influence he may have left among groups like the G-20, as well as undercutting the appeal of the Eur-Asian Union that he keeps trying to lure nations that used to comprise parts of the Soviet Union into. It also tends to weaken Russia’s position vis a vis China, which at the moment seems to be the only viable economic partner Moscow has. The prospect of economic ties to China sounds like it could be helpful to Russia, of course, but in reality it’s obvious that the Chinese merely view Russia as a source of raw materials —- including both energy and minerals from Siberia — and not any kind of equal economic power, so it’s unlikely that Moscow is getting the better part of the deal in any relationship with Beijing. Given all of this, it seems rather obvious that Russia is going to reach a point where its reach is going to exceed its grasp, and it’s likely to reach that point far quicker than the old Soviet Union did thanks to the fact that, this time, it is cannot shield itself from the impact of the world economy and global capital markets.
If these trends continue, then Putin is likely to face a choice in the not too distant future. He can continue with a course of adventurism and revanchism that seems to be doing little more than unite Europe against him and bring pain to his nation’s economy, or he can find a way to back down. As with anything dealing with this former KGB agent, what’s going on in his mind remains something of a mystery.
From Vox:
I’ve seen at least one story claiming Kerry reached an agreement with the Saudis and falling oil prices ARE a sanction.
@C. Clavin:
She’s German. “Remarkable bluntness” is what they do best, after engineering and beer.
Although, having been married to one for 22 years, there are times I wish the bluntness weren’t so remarkable…
Seems like the sanctions policy of the Administration IS working. Hopefully, it will get Putin to back off in the Ukraine.
I wonder if Merkel got tougher on Russia after that dog thing. If so, Putin’s dick move backfired.
I am not a great student of human history, but I can think of no instances when any nation’s leaders drew back from a losing course. Instead they redouble their efforts and label skeptics as traitors. Putin is very intelligent, maybe smarter than most world leaders, but he is not immune to this error. I predict a course of full-steam ahead for Russia. It is up to the Russian people to rein him in.
America’s leaders are certainly just as vulnerable. Fortunately, term limits decrease their ability to do harm. We should welcome all thoughtful debate.
Putin has canceled the pipeline to Europe, forced instead to aim for Turkey at discount prices. He’s already discounting to China. The Kiev government has cut off financial support for the breakaway Donbas region, throwing those folks on the Kremlin’s welfare rolls. Sanctions. Falling oil prices. NATO arming-up. And now he’s being accused of being little better than a thief. And he’s gained what, exactly? Bases in Crimea, which he already had.
Toldja so.
Symptomatic of a society that was rebuilt from the ground up in the Soviet image. We’re watching the spoils of totalitarianism in its death throes.
Off-topic, but the local right-wing radio guys were throwing commercials about oil investment left and right with slogans expounding on how oil has always outperformed the market. Jesus, chickens come home to roost, don’t they?
I’m sure ProFlowers is a fine site, but I don’t shop there because Neal Boortz recommended it once. For just this reason.
To steal a line from Ned Beatty, “You have meddled with the primal forces of nature, Mr. Putin, and I won’t have it! Is that clear?”
There is an unanswered question that poses a very serious risk. The question of whether Putin is a rational actor or a delusional, narcissistic megalomaniac. If the former, than he may indeed find a face saving “way to back down.” If not, and he is not constrained internally, one cannot completely discount the possibility of him initiating a nuclear exchange.
It may turn out that the most rational and predictable leadership in Russia are the 110 oligarchs who own the Russian kleptocracy. It’s my fervent hope and expectation that will get tired of watching Putin erode their ill-gotten lucre and decide they need a new Don more sensitive to their financial needs to run the criminal family. I’m envisioning a scene like in Godfather II when Don Corleone gives Fredo the kiss of death:
@Slugger: Russia’s attempt to place nuclear missiles in Cuba comes to mind, but yes, leaders find it very hard to back down. I would hope both the State Dept and Obama are aware of this and will leave Putin a line of retreat, perhaps largely based on his ability to tell his people whatever he wants, more or less independent of reality. He can always claim Crimea was all he wanted in the first place and he forced us to concede it.
I haven’t studied Putin, but I don’t recall evidence he’s outstandingly bright. Is there a good academic record or something?
I love how quickly we’ve gone from, “Oooh, look how macho Putinis all shirtless and judo-ing compared to wimpy, mom jeans Obama, who he’s just bitch-slapping,” to, “I sure hope Obama leaves Putin a way to save face.”
In another universe where right-wingers were capable of learning, they might learn something from this.
@michael reynolds: Just out of curiosity, are you referring to anyone in particular or is this comment referencing a generalized right wing composite construct of your fertile imagination?
@michael reynolds:
I strongly suggest you read this, from Sullivan.
And he doesn’t even mention Iran pitching in to fight ISIS.
http://dish.andrewsullivan.com/2014/12/02/ebola-isis-putin-meep-meep-watch/
@michael reynolds: Just out of curiosity, are you referring to anyone in particular? Or is this comment referencing a generalized composite “right winger” construct of your fertile imagination?
@C. Clavin:
Yeah, I just saw it. He still can’t quite bring himself to admit that Mr. Obama’s ISIS strategy is 1) a genuine strategy, contra the hysterics on the right, and 2) is working quite well. And I don’t think he’d noticed that Putin has had to cancel his big southern Europe pipeline that was supposed to impose a degree of Kremlin control over the Balkans. But he’s getting there.
We have a tendency in this country to think any a-hole with some swagger and ruthlessness is some kind of genius. We said it about Putin, we said it about al-Baghdadi. In fact they’re both bumblers. Putin picked a stupid fight with his main customers, and Al-Baghdadi managed to become so virulent he united the whole world against him. Flash ain’t brains.
@Dividist:
The right-wingers in question are many of our conservative commenters here who were united in their belief that Mr. Obama was a huge wimp unable to cope with Putin. They were echoing a story-line in the right-wing media/Congress.
One related development is the stronger connection between the European ‘conservative’ parties (in particular the French right-wing of Marine La-Pen) and Putin as an ideological beacon and Moscow as a source of funds. http://www.themoscowtimes.com/news/article/far-right-europe-has-a-crush-on-moscow/511827.html
Of course, the European ‘conservatism’ is pretty far from the American variety. But I thought the association of Moscow with right-wing goals made an interesting connection harkening back to the 19th century as it does.
@C. Clavin:
I’ve donw the same myself, as anyone not liking dogs is morally depraved.
@Ben Wolf: Three downvotes from cat lovers, probably. 🙂
@Dividist:
He’s just getting Ready for Hillary. It’s the ol’ Clinton playbook to blame everything on the right wing conspiracy. It’s also what happens when you get most of your news from this site and look for affirmation daily from people who agree with you on mostly everything. When he’s not doing that, he is leading the PC Police against anyone who may have criticism of Obama.
You just can’t criticize Obama on here or you are a Racist. It’s kind of like what Dana Carvey was referring to this week about Obama.
“Because of the sensitivity of having an African-American president, which is completely understandable…It took a while to find a way to satirize our president,” Carvey told Kozlowski. He admitted it took time to figure out how to satirize Obama. “We were all getting to know him as a country.”
I grew up with Question Authority. Now if Authority is, we have an Asian-American president, a woman president, a Native American president – it’s like, I’m going to try to do my – well, What’s happened during this time that everyone’s afraid to make fun in certain areas. Because you would be labeled. You would be given a name, you know? It’s very twisted stuff.
So I think that If you live in New York or L.A. and you’re liberal and you’re playing to a liberal crowd it’s almost like a rally, and then, The New York Times is there, too, I mean, it’s just sort of – it’s when there’s brilliant people doing it, but – it’s not edgy. The true edge is like what Dennis Miller did, and he’s been brutalized for it.
Carvey said “It’s an apolitical discussion in my case. It’s just a fact that everyone knows you will get what Robin used to call the ‘PC snake’ on a crowd from the left, and Republicans are a little lighter about it, or conservatives.”
This matches what SNL creator Lorne Michaels said about mockery earlier this year: “Democrats tend to take it personally; Republicans think it’s funny.” Look no further than the SNL “fact checks” this week on Obama’s illegal-immigration strategy.
Carvey added “It’s just a little disturbing…It’s different from doing comedy when you have a political agenda. I’m from the old school — you go where the power is and you try to make fun of it,” he said. “If it’s a liberal president, fine. If it’s a conservative president, fine. That’s just how we operate. But when it becomes off limits to say or do certain things without being brutalized or censored or whatever, it’s unfortunate.”
Carvey proclaimed “I take pride in having liberals and conservatives in the crowd.”
@Will: Would appreciate a brief explanation of what you are trying to say here. Best if you use actual — hummm — English sentences. All I can make out of that mash-up is that someone named Dana Carvey appeals to you. I don’t even know what team he plays on.
@Will:
You poor, poor, victim you. You come around here and spew stuff that is barely comprehensible, is largely fact free, and is loaded full of conspiracy theory. Then when people call you on it…you throw out the race card. All while flying the racist logo of a 3-9 team at the bottom of their division.
What nonsense.
@JohnMcC:
I’m sorry that I’m just an ordinary person with a limited education. I don’t use big words like you intellectuals. Just one of those dumb republicans that you all like to ridicule. When you guys want to have a serious debate with a Republican, let me know and I’ll stop obfuscating the issues.
My point is if you care is that any Criticism of the president is not tolerated on here without being labeled a Racist or an Idiot for not agreeing with the liberal gang. Mr Reynolds likes to make long rambling posts about how right he is all the time and how dumb and racist the Republicans are. Its not enough for him to make an argument, but he needs to go out of his away to bash Republicans on here. I know Michael needs his daily validation, but its reached the point of absurdity and hurts any argument he tries to make. It’s quite amusing to me when he his first post Ends with “told ya so” OR “In another universe where right-wingers were capable of learning, they might learn something from this”
My whole point of using Dana Carvey’s quote which was that you are stifling legitimate criticism of the president when you equate any criticism of Obama with racism.
Here;s the key part:
“So I think that If you live in New York or L.A. and you’re liberal and you’re playing to a liberal crowd it’s almost like a rally, and then, The New York Times is there, too, I mean, it’s just sort of – it’s when there’s brilliant people doing it, but – it’s not edgy.
@C. Clavin:
Sup buddy! Redskins are not doing well. I know it sucks but Good luck changing the Logo. You might actually pull it off in 20 years. And Cliff, nobody plays the Race card better than you on here, not even Reynolds. thanks for stopping by!
Certain posters must have very cold feet, considering the number of socks used for puppetting…
@Will: Dude, what you’re getting from us is WTF? You’re rambling. You’re starting to sound like those pathetic basement-dwellers that post pages and pages of screed on every blog open to comments that they can find.
Nice short sentences. Getting directly to the point. See?
@Wr:
Indeed. I’ve never seen you before. Are you new here?
@grumpy realist:
That’s how we republicans communicate. We’re simple people. That’s also why we voted for Bush twice and don’t like Obama. I also stopped wasting my time making lengthy arguments on here a while ago and my preference is short statements. I have neither the time or inclination to write an
essay. At least I don’t we
@grumpy realist:
That’s how we republicans communicate. We’re simple people. That’s also why we voted for Bush twice and don’t like Obama. I also stopped wasting my time making lengthy arguments on here a while ago and my preference is short statements. I have neither the time or inclination to write an
essay. At least I don’t write in Caps.
Indeed…apparently it’s much easier to farm out your arguments to people like Dana Carvey…
@An Interested Party:
It sure is. I love Dana carvey. Happy to have him speak for me.
Check out his 2008 special if you haven’t seen it.
Ah, a troll.
By the way, everyone–I found this amusing.:
(from NBC News)
@Will: For a humble (R)epublican, you have an excellent grasp of the importance of being a victim. Keep it up and you’ll have a great career in politics. No reason to learn to communicate real thoughts in well chosen words formed into meaningful clusters called sentences and paragraphs. Just keep mouthing “PC” and “tyranny” and “liberty” without any actual content. You’ll do fine.
And intellectual? Wow. I’ll tell my Mom! She’ll be so proud!
@grumpy realist: That’s great. Cruising sailors have a measure of a society’s cost of living by using the cost of a pint of cold draft beer in a working man’s tavern. I wonder if there’s a similar index based on the price of a professional lady’s time?
@JohnMcC:
I need to improve my lying to become a politician but lobbying may be up my alley. Maybe something in the Nucular industry.
@Will: Perhaps. Spelling might be an obstacle.
@JohnMcC:
What do you mean?? Bush says Nucular. that;s how we say it.
@Will: How amusing! Some work on punctuation, too.
@Will: By the way, before Dana Carvey was a gleam in his daddy’s eye, there was a comedian named Mort Sahl. He had a wonderful piece about the intolerance of northeastern liberals to Pres Lyndon Johnson. (It involved a feud between the Kennedys and the ‘regular’ old southern wing of the Dem party; nothing you need to worry about.)
As I recall, it went like:
“Ah think this about nucular disahmament…”
“Shuddup ya hick! Ya cain’t even tahk right!”
You might look old Mort up.
@JohnMcC:
Hmm, i never heard of Mort but he sounds quite interesting aside from being a Kennedy assassination kook. Surprised Stone didnt include him in JFK, but i might have missed it. There are so many cray theories in that movie that i may have missed him.
I’ll check out Mort on Spotify. Thanks for the TiP
@Will: Stone’s decent movies ended with Platoon, IMHO.
@JohnMcC:
You said it but I’d throw in Born on the 4th of July too as Stones last decent movie. Platoon remains my favorite war movie ever. I like King and Bunny the best.