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 Stumbling Russia's Economy Threatens to Fall off a Cliff, Carrying Currency with it - The Globe and Mail

Like the Canadian dollar and the Norwegian krone, the Russian currency has been under extreme pressure amid the collapse in oil prices.

Censor.NET reports citing The Globe and Mail.

The ruble plunged as much as 6.5 per cent Monday, hitting a record low against the U.S. dollar before retracing some its lost ground to close down 4 per cent, which traders attributed to central bank intervention. The ruble has lost close to 60 per cent of its value against the greenback so far this year. But if there's any relief in Russia's case, it promises to be temporary as a combination of falling oil prices, Western sanctions, capital flight and a string of policy mistakes threaten to drive an already stumbling economy off a cliff, carrying the currency with it, The Globe and Mail reporter Brian Milner writes.

"What we are seeing is a perfect storm," said Anders Aslund, a senior fellow with the Peterson Institute for International Economics in Washington. "The situation is far worse than the Kremlin says."
Despite the Kremlin's best efforts to deride Western sanctions as little more than an irritant, they are taking a heavy toll on Russia's financial sector and other parts of the economy.

Central bank reserves total what appear to be a comfortable $420-billion. But that's down more than $100-billion in just one year and will probably shrink by a similar amount in the coming year. What's more, $172-billion of the total is controlled by the Finance Ministry, another $45-billion or so sits in gold and $12-billion is parked with the International Monetary Fund. Another $150-billion is likely to be needed to cover foreign debt repayments over the next year, because the country has been cut off from normal U.S.-dollar refinancing channels by the sanctions.

Read also: Dollar Exchange Rate in Russia Exceeded 50 Rubles for the First Time

Still, for all its self-inflicted woes, there are no signs that the Russian economy is mirroring the steep drop in the ruble or facing a rerun of the 1998 collapse, said Neil Shearing, chief emerging markets economist with Capital Economics in London. "The economy's stagnating, but it's certainly not collapsing."

And there may even be a silver lining to the oil slide, if it shakes policy makers out of their complacency and forces them to tackle the structural problems weighing down the economy. Low oil prices were the trigger for previous reform efforts, Mr. Shearing notes. But he acknowledges that the Putin government has shown no inclination to pursue major economic changes.

His forecast puts Russia in recession territory for most of the coming year with a contraction of 1 to 1.5 per cent, which is in line with Moscow-based predictions. "Clearly, the risks lie to the downside."

Mr. Aslund does not do such crystal-ball gazing, but suspects the slump could be much greater, perhaps as deep as 4 to 6 per cent. Mr. Putin, he said, "has made every economic mistake in the book. We are reaching a tipping point."

Read also: EU and US Are Working on New Sanctions Against Russia - Tusk

 
 
 
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