10 Updates

According To The IMF, Russia's Economy Is Already In A Recession

May 1 2014, 9:17am CDT | by

I’ve written before that when it comes to Russia most analysts have been overly focused on the necessity of punitive sanctions, on the need for the US and the EU to “do something” to impress upon...

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12 weeks ago

According To The IMF, Russia's Economy Is Already In A Recession

May 1 2014, 9:17am CDT | by

I’ve written before that when it comes to Russia most analysts have been overly focused on the necessity of punitive sanctions, on the need for the US and the EU to “do something” to impress upon Putin that his government’s actions in Ukraine have been beyond the pale. Many people, particularly those of a more right-wing bent, have been positively infuriated by what they view as the “weakness” of the Obama administration and its European allies.

However, if you look at the actual performance of the Russian economy you could see that the Kremlin  was already “paying a price” (and quite a hefty one at that!) for its adventures in Crimea and the Donbass. Capital has been fleeing the country at a record rate, the ruble has been plunging in value, and inflation (the single most politically sensitive topic in Russia) has been persistently above target. Given the panicked moves of the central bank, which has hiked its primary interest rate by 2.5% over just the past two months, it seemed clear to me that Russia’s already-wobbly economy was on the verge of a recession and that the longer the chaos in Ukraine continued the greater the economic harm would be.

You can add the International Monetary Fund to the growing chorus of naysayers.  According to Antonio Spilimbergo, the IMF economist in charge of Russia, the Russian economy is already in a technical recession : ”If we define recession as negative growth in two quarters in a row, then Russia from that point of view is experiencing recession.”

And it’s not as if there is much good news on the horizon. The IMF forecasts that for all of 2014, Russia’s GDP will expand by 0.2 percent before accelerating slightly to 1 percent growth in 2015. However even those gather grim predictions (which, outside of 2009, would be the worst that Russia has performed since Putin first came to power) are predicated on a gradual decrease in geopolitical tensions and some sort of stable settlement in Ukraine. Spilimbergo specifically noted that “continued conflict could lead to additional sanctions and deterioration of confidence that could reduce investment and growth further,” and that the risks for Russia were all on the downside.

One should be careful in noting that even the dour IMF forecast does not equate to a “collapse” of Russia’s economy. For a variety of reasons, including the fact that the economy is still at or near full employment and the fact that the state budget remains in a small surplus, it is highly unlikely that there will be substantial short-term instability. For at least the next year or two the Kremlin will have more than enough cash on hand to plug all of the leaks. Russia’s adept performance during the far more serious 2009 crisis (when it rapidly instituted effective stimulus) suggests that it can weather almost any storm. So if you are expecting the current spate economic weakness to rapidly translate into public unrest of the kind that overthrew Viktor Yaukovych, you are likely to be sorely disappointed.

But from a medium and long-term perspective the risks to Putin and his government are growing at a frighteningly rapid rate. Because of space constraints I don’t want to list all of these risks here, but the IMF report does a very thorough job of explaining them all. These problems differ in many ways but what they have in common is that they are deep-seated and structural, and will therefore be much more difficult to solve. Defending a currency peg or tightening the supply of money can be done almost instantly. Courting foreign investment, however, is a  highly uncertain process that can take years or even decades. There’s no quick-fix for having a bad reputation among investors, and over the past few months the Kremlin has gone out of its way to remind the world that Russia is an exceedingly risky place to do business.

I sincerely hope that the ever-more-apparent economic costs of destabilizing Ukraine will impress upon Putin and his advisers that it is in their own best interest to swiftly find a negotiated settlement. They have been exceedingly aware in the past how much of their legitimacy rests on economic performance, so it’s primarily a matter of getting them to return to business as usual. Given how much harm Russia’s economy has already suffered, though, and given how little impact this has had on Russian policy, I have very little faith that there will be any sort of de-escalation. Economic considerations now seem to be systematically discounted in Moscow and that’s a strategy that can only end in tears.

Follow me on Twitter @MarkAdomais or on Facebook 

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rakyat was told ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by t ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datu ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern state ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in com ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Mini ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 mill ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Scheme 20 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Kidex ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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