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15.02.2016 11:16 Misery and luxury go hand in hand in Russia

We all know Russians have dark and tortured souls - just look at their literature - but another scale of unhappiness called the `misery index` relates levels of inflation and unemployment to the amount of social and economic pain those indicators inflict. At the moment, according to Bloomberg, Russia is the fourth most miserable country in the world, surpassed only by Turkey (3), Argentina (2) and in the unfortunate position of first place, Egypt. The index shows Russia has the second-highest inflation rate at 13 percent, one point behind Argentina, and an unemployment rate of 6 percent. Government statistics say real wages have dropped by about 9 percent. And grumbles are growing. Protesters in the southern city of Rostov-on-Don took to the streets last weekend using humor to get their point across. In a parody of the support shown to those killed at Charlie Hebdo they carried signs saying "Je suis Ruble." Others read "Indecent behavior by the ruble: How low you have fallen!" and "Get up, it`s time to catch up with Africa." Perhaps the most poignant read "The ruble hasn`t fallen, only slipped. On a piece of salo" - a type of cheap salty cured pork fat which might now almost be considered a delicacy as buying power diminishes.

13.02.2016 18:24 Four key problems for Russia`s economy to overcome

Debate about the need for structural reforms has intensified in Russia. But what should they be directed at? At the Foreigners Life conference in Moscow from Feb. 5-7, leading Russian economists identified four main problems with the Russian economy. 1. The population is becoming impoverished faster than before. Compared to the recent crises in the Russian economy, the population is getting poorer much faster this time. By year-end 2015, the amount of goods purchased by Russians had decreased by 10 percent. Even during the most serious crisis in modern history of the country – in 1998 – this figure (final consumption of households) fell by only 5 percent, and by 4 percent after the global financial crisis in 2009. There is also another reason why the population is running out of money. Businesses are deliberately reducing wages in order to increase their own profits. In 2015, nominal wages grew by 4.6 percent, while company profits increased by an average of 49 percent. One of the reasons for this is the lack of effective trade unions to defend the rights of workers in Russia.

11.02.2016 22:53 Can latest government strategy lift the Russian economy?

Signs for the Russian economy at the beginning of 2016 are not looking good. According to a variety of indicators, the crisis has deepened. The GDP fell by 3.7 percent in 2015, retail trade declined by 10 percent and investment shrank by 8.4 percent. In an attempt to keep the economy afloat, the government has now asked all the ministries to reduce their spending. The reductions will total around 0.9 percent of GDP and will help maintain the budget deficit below 3 percent. However, after the cost of Brent crude fell in January to $30 a barrel (which may lead to further slowdowns in Russia`s oil-dependent economy), the government decided to develop a special anti-crisis plan. Unlike last year, the government is trying to help the real sectors of the economy without going through the banking structures. If in 2009 and 2014 the government directed anti-crisis resources through the capitalization of banks and the stimulation of loans, then the plan now is to issue various types of grants and government contracts. This means that the enterprises will receive money directly, bypassing credit institutions, and it will be the government that decides who will be the recipients of the precious billions. But could there be another way of helping Russia to climb out of financial trouble?

09.02.2016 14:18 How Low Can The Russian Ruble Go?

The European sanctions and sharp fall in crude oil prices have weighed on the Russian economy. I have remained bearish on the Russian Ruble since the beginning of 2015. Recently, the Russian Ruble touched a low of 83.63 against the U.S. dollar as Brent crude oil prices fell below $30 a barrel. Oil prices are projected to touch as low as $20 a barrel. So where is the Ruble heading?

07.02.2016 16:35 Citi: World economy seems trapped in death spiral

The global economy seems trapped in a "death spiral" that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned. Some analysts - including those at Citi - have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S. "The world appears to be trapped in a circular reference death spiral," Citi strategists led by Jonathan Stubbs said in a report on Thursday. "Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)... and repeat. Ad infinitum, this would lead to Oilmageddon, a `significant and synchronized` global recession and a proper modern-day equity bear market." Stubbs said that macro strategists at Citi forecast that the dollar would weaken in 2016 and that oil prices were likely bottoming, potentially providing some light at the end of the tunnel. "The death spiral is in nobody`s interest. Rational behavior, most likely, will prevail," he said in the report. Crude oil prices have tumbled by around 70 percent since the middle of 2014, during which time the U.S. dollar has risen by around 20 percent against a basket of currencies. The world economy grew by 3.1 percent in 2015 and is projected to accelerate to expand by 3.4 percent in 2016 and 3.6 percent in 2017, according to the International Monetary Fund. The forecast reflects expectations of gradual improvement in countries currently in economic distress, notably Brazil, Russia and some in the Middle East. By contrast, Citi forecasts the world economy will grow by only 2.7 percent in 2016 having cut its outlook last month.

04.02.2016 16:09 Recession in Russian economy to continue - Bank of Russia

Recession in the Russian economy will continue, the Bank of Russia said. "Industrial production statistics for December 2015 shows that production decline continues on the whole across main kinds of economic activity. This evidences concerns that the decline in the Russian economy will last longer than assumed earlier. The primary reason is the decline in oil prices in the coming months," the regulator said. "Macrostatistic data received in the late month confirms the assumption we made in January regarding higher probability of continued recession in the first half of 2016," the Bank of Russia said. According to the Central Bank, Russia`s budget deficit amid $35 per barrel oil price will grow to 4.8% of GDP. "Implementation of base case forecasted scenario [implying average oil price in 2016 at $35 per barrel - TASS results in lost federal budget revenues versus 1.45 trillion rubles outlined by the legislation and raises deficit from 3% to 4.8% of GDP," the report said. Also, targeting deficit of 3% of GDP without raising debt burden necessitates a respective spending reduction by almost 9% of 16.1 trillion rubles outlined by the legislation, the report said.

02.02.2016 18:34 Sorry Haters, Russia Survives $30 Oil

Russia`s economy has adjusted relatively well to lower oil prices thanks in large part to the ruble, which has tracked oil`s fortunes since 2014. But if oil falls below $30 for an extended period, then all bets are off and Russia`s economy will be in for a prolonged recession. The investment research arm of Sberbank, Russia`s largest lender, warned that if oil does average under a $30 per barrel, then Russia`s budget deficit easily widens to around 3.5 trillion to 3.9 trillion rubles, or around $48.7 billion. Government expenditures are budgeted at around 16 trillion rubles. In a sub-30 oil scenario, the Russian government will be forced to cut its budget by 10% in order to reduce the deficit, according to Sberbank CIB. Russia`s federal government remains highly solvent. The country is run by a bend-don`t-break mentality in the economic policy centers. Western sanctions have helped prolong a recession. Oil just made it worse. Last year, Russian government accounts declined by around 900 billion rubles. But the Finance Ministry held 250 billion rubles on deposits with banks as of January 1, as well as some more cash not spent in 2015. Investors have told FORBES that lifting of sanctions on Russian energy and finance will be a boon for sentiment, but won`t translate into economic growth overnight.

01.02.2016 20:04 Russian Central Bank forecasts GDP decline more than in base case scenario in 2016

The Bank of Russia does not rule out Russia`s GDP will decline more in 2016 than assumed earlier in the base case scenario (0.5-1%) due to probably lower oil prices, the regulator said on Friday after its Board of Directors` meeting on the key rate. The GDP growth rate will be positive in 2017 but will remain low, the Bank of Russia said. According to the base case scenario of the Central Bank released last December, the GDP will decline 0.5-1% in 2016 and may grow up to 1% in 2017. "Oil prices in 2016-2017 will probably be lower than assumed in the base case scenario. The floating rate will partly compensate the adverse impact of low energy prices on the economy. Nevertheless, further adaptation of the payment balance and the economy to lowered level of global prices on Russian export will be required. The GDP decline will therefore be more substantial than forecasted earlier in the base case scenario," the regulator said. The period of additional adaptation of the Russian economy may take several quarters. According to regulator`s forecast, oil prices will be $50 a barrel under the base case scenario and $35 per barrel under the risky scenario.

30.01.2016 12:59 How Cheap Oil Is Squeezing Russia`s Economy

When Vladimir Putin first became Russia`s president back in 2000, oil traded at an average $28.40 a barrel. After spending much of the past five years above $100 a barrel, crude prices have come nearly full circle. In just the past few weeks, oil prices have fallen about 16 percent. That`s poised to squeeze an economy that`s heavily dependent on the commodity for its revenues. The Finance Ministry in Moscow has already warned about a higher deficit if spending cuts and other austerity measures aren`t implemented in the face of cheaper crude.

29.01.2016 14:07 Fitch Highlights More Risks to Emerging Markets and High-Yield Credit

Fitch Ratings has released its latest global credit outlook. The good news is that overall credit ratings outlooks are said to be improving in most sectors in developed market regions. The bad news is that credit rating outlooks are worsening in emerging markets, which is on top of having fallen for the past five years. In fact, Fitch said that emerging markets are now more negative than their developed market equivalents in core sectors. One issue here is the strong dollar. Fitch points out that there is a correlation between a strengthening U.S. dollar and weakening emerging market sovereign credit worthiness, as falling U.S. dollar incomes can affect credit fundamentals. The other issue brought up is the environment of low commodity prices. Fitch points out that low commodity price are the greatest risk to emerging market sovereign ratings. After all, emerging markets generally are considered to be net exporters of commodities (outside of India and China).


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