Tuesday 24 April 2018

Putin insists Russia's economic crisis has peaked despite oil slump

Russian President Vladimir Putin
Russian President Vladimir Putin

Peter Spence

Russia’s economic crisis has peaked, Vladimir Putin has claimed, despite warnings that the oil-crippled nation will remain stagnant for the foreseeable future.

Mr Putin, Russia’s President, admitted that the economy was in a worse position than he had expected, as a result of a renewed sell-off in “volatile” oil prices. However, he said that “the statistics show that the Russian economy has passed the peak of the crisis”.

Speaking at an annual press conference in Moscow, Mr Putin said there had been signs of a stabilisation in business activity. The President said that the government anticipated GDP growth of 0.7pc in 2016, rising to 1.9pc in 2017 and 2.4pc in 2018.

The country is the world’s largest oil exporter, and has found itself floundering as prices have crumbled over the past two years. If crude prices fell further, to $30 (£20) a barrel, Russia’s financial industry would be at threat, according to a Bloomberg survey of analysts.

Mr Putin said the Russian economy is “hugely dependent” on global factors. A year earlier, the Russian President had claimed that the economy would have recovered by around the end of 2016.

The President said that when he had spoken about his plans last year, officials had assumed that the average price of a barrel of Brent crude would stand at $100.

“Last year we had to recalculate because the price has fallen two-fold,” Mr Putin said. “It used to be $100 a barrel, then it was $50 per barrel," he said, identifying the $50 level as the one incorporated into the government's latest forecasts.

Such a price would be “very optimistic” for 2016, he said, given that Brent has traded as low as $36.33 a barrel in recent days.

Energy exports made up roughly 40pc of the Russian state’s revenues, as policymakers have not used a commodity windfall to rebalance the economy. Paul McNamara, an investment director at GAM, said: “It’s a country that really doesn’t do very much, except facilitate rent extraction by people who’ve managed to lay claim to natural resources.”

A brutal sell-off in oil prices will leave many of the world’s largest exporters scrambling to adjust, as their budget plans have been rendered unsustainable. Oil exporters such as Venezuela, Colombia, Nigeria, Ecuador and the economies of the Gulf region are among those that will be forced to revisit their spending plans.

However, unlike many other commodity producers, Russia has low levels of public sector debt, and high reserves. This has meant that Moscow’s policymakers can get away with Russia’s economy being being “completely stagnant”, explained Mr McNamara.

The size of the Russian recession that has followed the downturn in prices is largely because of a desire to avoid running a large budget deficit. “They have cut spending on basically everything except the military,” said Mr McNamara, choosing to tighten not just spending, but monetary policy as well, by way of higher interest rates.

Edward Morse, an analyst at Citi, has said that oil prices could drop further, suggesting that Brent “might need to fall to $30 per barrel”. The US bank has estimated that oil would have to climb back to $80 a barrel in the next year for the Russian government to balance its budget.

“We will have to make some more adjustments,” Mr Putin conceded. “The deficit is going to amount to 2.8pc of GDP… in order to ensure that the federal budget is balanced we have resorted to the funds from the federal reserve fund,” he said.


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