Stats signal ‘r’ for recession as Russia fears catching the Flu

In good times Russia, the ‘R’ in BRIC, was an economy growing rapidly and with big opportunities for its 143 million population. However, an economy heavily reliant on fossil fuels has failed to sufficiently diversify and growth has stalled since the global financial crisis. Last week, the Russian Economy Ministry cut its growth forecasts for 2013 for the second time this year. Reuters reported that The Economy Ministry had cut its 2013 forecast to 1.8 percent, down from 2.4 percent, having been hit by weaker than anticipated exports and consumption growth.

Is Russia looking vulnerable to recession or is it already technically in recession? Last week Bloomberg questioned this very point.

Sberbank – the state-controlled ‘Savings Bank’ – and Russia’s largest bank with almost half of all deposits by value, reported a big rise in provisions against bad loans on Wednesday. With typical interest rates for loans in the region of 15% for ruble-denominated loans there are concerns that households might struggle to keep up with their loan repayments in a slowing economy.

Russians are always worried in August, it being the anniversary of the 1998 crisis. Recently, the 15-year anniversary passed of the so-called ‘Ruble crisis’ – or ‘Russian Flu’ – which hit on 17th August, 1998. It resulted in the Russian government devaluing the ruble and defaulting on its debt, causing tremendous financial hardship for millions of Russians.

Russia will face a boost in the months leading up to the Winter Olympics, due to take place in the southern resort of Sochi 6 months from now, but that will likely be temporary as past Olympics have shown.

Russia’s leaders have not offered any explicit indication of how they plan to combat problems with the country’s growth. With much focus on Syria and the hit to the US-Russia relationship from the Snowden affair, has the Putin administration taken its eye off the ball with regards to the domestic economy? Mr Putin has pointed to the east, hailing China’s rise as an opportunity for Russia to emulate.

The next few months will show what Russia plans to do to combat the sluggish growth that is now, at best, likely for the remainder of 2013. The Central Bank has kept interest rates largely unchanged, and the Kremlin is largely deaf to calls to improve the country’s stifling business climate.

With Vladimir Putin in power to the end of his term in 2018, nothing short of an economic collapse could force a policy change. For now, the fundamental problems causing this slump could be allowed to fester, and ordinary Russian citizens will be worse for it.


About emerge28

I travel the world, promoting foreign direct investment (FDI) into emerging nations via country branding reports within international media. The aim of my blog is to document some of the amazing places I travel to, the inspiring people I meet and chart how the world is changing, with power and growth moving east and south.
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