Russia facing recession next year
SLUMPING oil prices have put Russia’s economy on course for a sharp recession next year, its finance minister said yesterday, as authorities scaled up a bailout of the first bank to succumb to the currency crisis.
Russia’s economy is slowing sharply as Western sanctions over the Ukraine crisis deter foreign investment and spur capital flight, and as a sharp slump in oil prices severely reduces Russia’s export revenues and pummels the rouble.
The government has taken steps to support key banks and address the deepening currency crisis in the past week, including a sharp and unexpected interest rate hike, but analysts are pessimistic on the outlook.
Finance Minister Anton Siluanov told journalists yesterday that the economy could shrink by 4 percent next year, its first contraction since 2009, if oil prices averaged their current level of US$60 a barrel.
Siluanov also said the country would run a budget deficit of over 3 percent next year if the oil price did not rise.
Crude prices have almost halved from their June peak amid a global glut and a decision by producer group OPEC not to cut output. Saudi Arabia said yesterday it was prepared to withstand a prolonged period of low prices.
“We need to have our budget break even at US$70 per barrel by 2017,” Siluanov said.
Russia’s government also imposed informal capital controls this week, including orders to large oil and gas exporters Gazprom and Rosneft to sell some of their dollar revenues in a bid to shore up the rouble.
Russians have kept an eye on the exchange rate since the collapse of the Soviet Union, when hyper-inflation wiped out their savings in the early 1990s.
“If oil goes down to US$50 (per barrel) ... I don’t think our authorities will be able to artificially maintain the (rouble) rate,” said the head of treasury at a Russian bank, who spoke on condition of anonymity.
Also yesterday, Russian authorities scaled up rescue funds for Trust Bank, saying they will provide up to US$2.4 billion in loans to bail out the lender.
The falling rouble has prompted panic buying of foreign currency heaping pressure on a banking sector whose access to global capital markets has been restricted by sanctions.
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