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09.02.2015 22:40 Russia: How long until the economy cracks?

Russia is skating on thin ice: Cheap oil, Western sanctions and years of mismanagement have sent its economy into a deep freeze. Now everyone is wondering when the ice will crack. As things stand, Russian GDP is expected to shrink by 5% (or more) this year, inflation has soared to 15%, the ruble is trading near record lows, consumer and business sentiment is on the slide, and its companies are shut out of financial markets in the U.S. and Europe. Escalating violence in Ukraine could lead to new international sanctions, and there`s little sign of a significant rebound in world oil prices. So just how long can Russia avoid complete economic meltdown? Much will depend on how fast it burns through its remaining stash of foreign currency. Last year it spent $134 billion trying to prop up the ruble, bail out struggling companies and contain the crisis. That splurge cut its international reserves to about $376 billion, more than enough to finance a year of imports if necessary, but the lowest level since the depths of the global financial crisis in March 2009. Russia needs reserves for imports, but also to service $600 billion worth of foreign debt -- most of it held by Russian companies and banks. Depending on who you ask, the crunch could come by the end of this year, or it could hold out for another 12 months beyond that.

27.01.2015 17:00 Russian Economy Will Rally, But Won`t Boom

There is currently a lot of noise about the Russian economy and almost all of it is bad. Many commentators predict that a catastrophe lies ahead and the economic destruction will lead to social instability and eventually a political crisis. But is such a negative view really valid? And is it fair to say that the crisis is either all about sanctions or all about the oil price collapse? Let`s turn down the noise a bit and have a look at the key issues. How bad will the downturn get? A decline of about 5 percent over the first two quarters of this year is not an unreasonable expectation as consumer activity and investment spending have already collapsed. In addition, consumer inflation is expected to peak around 15 or 16 percent in the spring, with food inflation probably near double that. The prevailing uncertainty will also depress economic activity. But forecasts of a full year collapse similar to that of 2009, when gross domestic product contracted 8 percent, are wide of the mark based on currently known facts and trends. Oil trades will certainly be key but also, one must not forget that the ruble collapse is a two-sided story; the weak ruble has helped substantially cut imports and boost demand for some locally produced goods. People who are now unable to afford to travel abroad for leisure or health care will spend more at home. This trend is one reason why the manufacturing and agriculture sectors were much better in 2014 and helped keep the GDP indicator marginally positive at about 0.5 percent growth. That will also be the case this year and a more reasonable assumption is for a full year decline of about 3 percent.

26.01.2015 15:19 HSBC cuts GDP outlook for UAE and 12 other oil exporters

The plunge in oil prices prompted HSBC to cut this year`s economic outlook for 13 crude exporters across central, eastern Europe and the Middle East as public spending drops. Economic growth in the grouping will slow to 1.8 per cent, compared with an estimate of 2.6 per cent in October, the London-based bank said in a report yesterday. Russia`s GDP may shrink 3.5 per cent, compared with an October forecast of a one per cent-contraction, the bank said. “With the lower oil price, we are looking for an across the board squeeze,” Simon Williams, chief CEEMEA economist, said in a phone interview from London. “Oil-funded public spending will slow, public and private investment will moderate, and consumption will ease as confidence falls. Governments as borrowers rather than creditors will also put pressure on liquidity.” Oil exporters in the region, especially in the six-nation GCC, have used oil wealth over the past decade to transform their cities, building finance centres, airports and ports that turned the Arabian desert into a banking and travel hub. Crude slumped almost 50 per cent last year as the US pumped oil at the fastest rate in more than three decades while Opec resisted calls to cut supply.

22.01.2015 12:45 EBRD says Russian economy to shrink 5 percent this year

Russia`s economy will shrink by close to 5 per cent this year, the European Bank for Reconstruction and Development forecast, while average growth for eastern Europe and the former Soviet Union will fall into negative territory for the first time since 2009. The development bank for the former Communist bloc said plunging oil prices and western sanctions would lead to a contraction in the Russia`s economy of 4.8 per cent this year, compared with a forecast drop of 0.2 per cent in September. The EBRD also forecast that Ukraine`s economy would shrink 5 per cent in 2015, on top of a 7.5 per cent decline last year. The bank warned that Ukraine`s foreign exchange reserves were “dangerously low”, adding it was “concerned” at the time being taken to put together a new international financial aid package. Noting Russia`s “systemic importance” to the region because of its close economic links and workers` remittances, the EBRD slashed its average growth forecast for its 35 countries of operation to minus 0.3 per cent, from a plus 1.7 per cent forecast in September. The downgrades reflect how Russia`s economy is being battered by falling prices for oil, its main export, and financing difficulties caused by EU and US sanctions imposed over the crisis in Ukraine, as well as the implications of the slowdown for the whole region.

21.01.2015 20:52 IMF cuts global economic growth forecasts

The International Monetary Fund has cut its growth forecasts for the global economy on the back of a slowdown in China, looming recession in Russia and continuing weakness in the eurozone. The Washington-based fund warns that the boost from lower oil prices is being outweighed by a host of negative factors and it now expects global growth to edge up only slightly from 3.3% last year to 3.5% this year. That is down from a 3.8% forecast for 2015 in its World Economic Outlook published in October. It forecasts growth picking up only slightly next year and cut its 2016 forecasts from 4% to 3.7%. The gloomier outlook comes as business people and world leaders gather in the Swiss mountain resort of Davos for this year`s World Economic Forum meeting. The IMF has plenty for policymakers at the summit to consider, including pleas to boost growth with more infrastructure projects, keeping interest rates low to ward off deflation and making the most of cheaper oil to shake up energy subsidies. The US is the only major economy where the IMF has raised growth forecasts for the next two years. It sees a boost from lower oil prices and strong domestic demand helping the US economy to grow 3.6% this year, up markedly from a 3.1% forecast made in October. Worldwide, the net benefit of the “plunge” in oil prices, which have more than halved since last June, has been more than offset by adverse factors, the IMF said. It cites weaker prospects for China, Russia, the eurozone and Japan as well as a slowdown in some major oil exporters because of the sharp drop in crude prices.

17.01.2015 19:52 Why the US will power the world economy in 2015?

The United States is back, and ready to drive global growth in 2015. After long struggling to claw its way out of the Great Recession, the world`s biggest economy is on an extended win streak that is edging it closer to full health. But the new year doesn`t look quite so bright in other major countries. China is slowing as it transitions from investment to consumption. Japan has slid into a recession. Russia appears headed for one. Europe is barely growing. And the U.S.? Six years after its financial system nearly sank and nearly that long since the recession ended, the United States is expected to grow in 2015 at its fastest pace in a decade. Its expansion from July through September — a 5 percent annual rate — was the swiftest for any quarter since 2003. That pace will likely ease a bit. Still, the economy is expected to expand 3.1 percent next year, according to a survey by the National Association for Business Economics. It would be the first year of 3 percent growth since 2005. The acceleration of U.S. growth is a key reason the global economy is also expected to grow faster, at about 3 percent, up from 2.5 percent in 2014, according to economists at JPMorgan Chase and IHS Global Insight.

16.01.2015 18:39 EU, BRICS woes offset oil`s global GDP boost

Plunging oil prices are giving a bump to consumer and business spending around the world – just not enough to increase global growth forecasts. A darkening outlook in emerging markets including China, Russia and Brazil, and geopolitical risks such as Greece`s possible exit from the euro are overshadowing the benefits from lower energy costs. The median estimate for 2015 world expansion from economists surveyed by Bloomberg News has been unchanged since October, when it fell to 3.5 percent from 3.6 percent. “People are cautious in a world where they see other risks skewed to the downside,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. “There`s still a question mark out there.” Economists` reluctance to boost estimates underscores the fragility of global growth after four straight years of below-forecast expansion. JPMorgan is a case in point: It estimates that sustained $60-a-barrel crude oil prices will add 0.5 percent to global gross domestic product, yet its Jan. 2 world expansion forecast of 2.9 percent for 2015 is down from a 3.3 percent estimate in July. The U.S., with a 3.2 percent expansion estimate, is the only one among the world`s 10 biggest economies that JPMorgan now sees growing more quickly than expected in July. The bank projects emerging markets will grow 3.9 percent this year, down from its July forecast of 4.9 percent, reflecting markdowns for nations including Russia, Brazil and India.

15.01.2015 19:36 Why cheap gas prices are ruining Russia`s economy?

Cheap gasoline may be a blessing for drivers and a boon to the US economy, but it is wreaking havoc with oil-producing countries around the world. Perhaps none has struggled as much as Russia, where the fall in oil prices has set off a cascade of economic crises and left the country flirting with a prolonged recession. One way to understand the current situation, and Russia`s uncertain future, is to take it one crisis at a time. At this point, Russia doesn`t have a lot of good options. It can hope that the price of oil rebounds. It can use some of the dollars it keeps in reserve to buy up rubles and perhaps stabilize the currency. It could even impose more dramatic “capital controls” to prevent Russians from trading their rubles into other currencies. Perhaps most dramatic, and most unlikely, Russia could appeal to the International Monetary Fund for assistance. After all, that`s what the IMF is for, to help countries escape from a downward economic spiral. But there are two reason to think an international bailout is extremely unlikely. First, the IMF would have to agree to help a government still under intense sanctions for its annexation of Crimea. Seocnd, Putin would have to accept the terms of an IMF leash.

12.01.2015 20:00 1998 and 2014: Russian crisis in perspective

Russian banks have warned against hysterically jumping to the conclusion that the current ruble crisis will follow the trajectory of 1998, when the country was forced to default. The ruble`s spectacular 22 percent plunge on Monday and Tuesday has prompted investors to liken the crisis to 1998, when the ruble lost 27 percent on August 17, 1998. However, these days, Russia`s balance sheet is strong enough to weather the ruble sell-off. On Tuesday, the ruble grazed the 80 ruble to the US dollar benchmark. In 1998, over a six month period, the currency lost more than 70 percent of its value. Inflation skyrocketed, banks and enterprises across the country collapsed, and Russians were left jobless. Russia`s GDP took 7 quarters to recover to pre-crisis levels after 1998. Black Tuesday of 2014, as it`s called, has brought back many similar memories, but the situation has changed greatly, according to experts.

06.01.2015 19:58 Russia`s Gov`t Wrong Again On Ruble

Russia`s Minister of Economic Development, Alexey Ulyukayev, said two weeks ago that the ruble would be less volatile in January. On Monday Jan 5th, the first active trading day of the year following the long New Year`s holiday in the U.S., the Russian currency weakened back into the 60s. The ruble has lost another 10 basis points against the dollar since Ulyukayev said his country`s currency would soon stabilize, following a record-breaking sell-off last month that took it over 70 to 1 in intraday trade. The ruble settled at 61.60 on the heels of oil prices falling below $50 a barrel during Monday`s futures trading. Russia`s economy is heavily linked to global oil markets as it is one of the world`s largest energy exporters. During the last few months, oil prices have declined sharply from above $110 per barrel in early 2014 to the current $55 price, amid market oversupply. The Russian state media has taken to blaming U.S. shale oil development for the reduction in price. However, lackluster demand from China and Europe, two of the world`s most important energy markets, and Saudi Arabia`s refusal to cut output have also contributed to a nearly 50% drop in oil prices. Russia`s currency faces dual headwinds of geopolitics and oil market fundamentals.


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