News / Economy

Despite Falling Growth, Russia Reverts to Old Playbook on Economy

Russian President Vladimir Putin (L) talks to Federation Council Deputy Chairman Yuri Vorobyov during a meeting with members of the Federation Council at the Novo-Ogaryovo state residence outside Moscow, March 27, 2014.
Russian President Vladimir Putin (L) talks to Federation Council Deputy Chairman Yuri Vorobyov during a meeting with members of the Federation Council at the Novo-Ogaryovo state residence outside Moscow, March 27, 2014.
Reuters
Russian officials have dramatically reduced growth forecasts for this year and acknowledged the annexation of Crimea will spur capital outflows and hurt investment, but they have not entirely ripped up the old script.

At an investment conference on Thursday, Russia's central bank head and finance and economy ministers were sanguine, boasting they had ways to protect the economy against the fallout from the worst East-West standoff since the Cold War.

Most would not have to be used, they said, and the crisis over Crimea eventually could help the economy become more self-sufficient, a message that matches President Vladimir Putin's longstanding drive to bring money home from abroad.

While sticking to a protocol agreed last week with Putin for all public comments to refer to economic and financial stability, however, Russia's three leading financial officials were clearly making preparations for the worst.
 
U.S. Officials Sanctioned by Russia

  • Senate Majority Leader Harry Reid
  • Senator John McCain
  • Senator Daniel Coats
  • Senator Robert Menendez
  • Senator Mary Landrieu
  • House Speaker John Boehner
  • Deputy National Security Advisor Caroline Atkinson
  • Presidential Aide Daniel Pfeiffer
  • Deputy National Security Advisor Ben Rhodes

Having already stopped referring to the official growth forecast for 2.5 percent this year, Economy Minister Alexei Ulyukayev said instead it could slow to 0.6-0.7 percent if capital flight reached $100 billion this year.

The Economy Ministry has estimated capital outflows of up to $70 billion in the first quarter alone.

“[With] an outflow of $150 billion, growth becomes negative,” he said, suggesting Russia could tumble into recession for the first time since the aftermath of the global financial crisis in 2008-09.

In the first estimate by a leading international body, the World Bank said on Wednesday Russia's economy could contract markedly this year and see record capital outflows of $150 billion if the crisis over Crimea deepens.

It said Russia's gross domestic product could shrink by 1.8 percent, hurt by uncertainty over future measures the West may take to punish Russia for annexing Crimea - a move criticized by Ukraine, the United States and the European Union as illegal.

Economists have also said Russia's economy would suffer badly if the price of oil, its main export item, were to fall.

A Reuters poll of analysts on Thursday showed that increasing supplies from North America and OPEC nations coupled with sluggish global demand will push oil prices lower in 2014, with further falls expected in 2015 and 2016.

Fears for Future

Russia's former finance minister, Alexei Kudrin, agreed, saying it was not the sanctions themselves that were damaging the economy but the expectation of more, possibly targeting trade or finance, and also how Moscow would retaliate.

“All this affects the amount of capital outflows and investments. The general atmosphere of uncertainty about Russian policy in these circumstances is also a deterrent,” he said.

“My forecast for economic growth is about zero, plus or minus 0.5 percent,” he said, pegging outflows at $150 billion to $160 billion.

He said this was what it cost to pursue an independent foreign policy and society was so far prepared to agree to such a cost.

“We are paying hundreds of billions of dollars for this, hundreds of billions, and we will see lower GDP growth, investment and revenues,” said Kudrin.

For now, most officials are at least publicly backing Putin's decision to pursue his strident foreign policy, forcing their financial colleagues to come up with ways to plug the gap.

Ulyukayev urged a loosening in budget funds to help spur investment, possibly from oil revenues.

Finance Minister Anton Siluanov said he was ready to offer companies the same emergency measures adopted during the 2008-2009 financial crisis when the government spent billions of dollars -- or about 8 percent of GDP -- bailing out Russia's major banks and companies.

He suggested using funds from the National Wealth Fund, a sovereign fund financed from oil taxes designed to support the pension system, which as of March 1, stood at $87.3 billion.

Central Bank Governor Elvira Nabiullina also promoted a plan to ease borrowing at home, pointing to three-year refinancing for banks secured by state-backed investment projects as a way of reducing reliance on Western finance.

For the time being, though, the overall message was relatively upbeat.

“We expect that one of the consequences of these recent events could be an increase in demand for credits inside the country, if access to lending abroad is reduced for companies and banks,” said Nabiullina.

You May Like

Changing Under Pressure, IS ‘Potent’ as Ever

US intel officials describe Ramadi's fall as concerning, but say it isn't emblematic of larger effort to degrade IS capabilities More

Nigeria Fuel Shortage Shows Fragility of Africa’s Oil Giant

Although it is the largest oil producer in Africa, country has nearly ran out of fuel it needs to power its generators, cars and airplanes over the past week More

Arrested Football Officials Come Mainly From the Americas

US Justice Department alleges defendants participated in 24-year scheme to enrich themselves through corruption of international soccer More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
3D Printer Makes Replica of Iconic Sports Cari
|| 0:00:00
...    
🔇
X
George Putic
May 27, 2015 9:31 PM
Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video 3D Printer Makes Replica of Iconic Sports Car

Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video US Voters Seek Answers From Presidential Candidates on IS Gains

The growth of the Islamic State militant group in Iraq and Syria comes as the 2016 U.S. presidential campaign kicks off in the Midwest state of Iowa.   As VOA’s Kane Farabaugh reports, voters want to know how the candidates would handle recent militant gains in the Middle East.
Video

Video A Small Oasis on Kabul's Outskirts Provides Relief From Security Tensions

When people in Kabul want to get away from the city and relax, many choose Qargha Lake, a small resort on the outskirts of Kabul. Ayesha Tanzeem visited and talked with people about the precious oasis.
Video

Video Film Festival Looks at Indigenous Peoples, Culture Conflict

A recent Los Angeles film festival highlighted the plight of people caught between two cultures. Mike O'Sullivan has more on the the Garifuna International Film Festival, a Los Angeles forum created by a woman from Central America who wants the world to know more about her culture.
Video

Video Kenyans Lament Losing Sons to al-Shabab

There is agony, fear and lost hope in the Kenyan town of Isiolo, a key target of a new al-Shabab recruitment drive. VOA's Mohammed Yusuf visits Isiolo to speak with families and at least one man who says he was a recruiter.
Video

Video Scientists Say Plankton More Important Than Previously Thought

Tiny ocean creatures called plankton are mostly thought of as food for whales and other large marine animals, but a four-year global study discovered, among other things, that plankton are a major source of oxygen on our planet. VOA’s George Putic reports.
Video

Video US-led Coalition Gives Some Weapons to Iraqi Troops

In a video released Tuesday from the Iraqi Ministry of Defense, Iraqi forces and U.S.-led coalition troops survey a cache of weapons supplied to help Iraq liberate Mosul from Islamic State group. According to a statement provided with the video, the ministry and the U.S.-led coaltion troops have started ''supplying the 16th army division with medium and light weapons in preparation to liberate Mosul and nearby areas from Da'esh (Arabic acronym for Islamic State group).''
Video

Video Amnesty International: 'Overwhelming Evidence' of War Crimes in Ukraine

Human rights group Amnesty International says there is overwhelming evidence of ongoing war crimes in Ukraine, despite a tentative cease-fire with pro-Russian rebels. Researchers interviewed more than 30 prisoners from both sides of the conflict and all but one said they were tortured. Henry Ridgwell reports for VOA from London.
Video

Video Washington Parade Honors Those Killed Serving in US Military

Every year, on the last Monday in the month of May, millions of Americans honor the memories of those killed while serving in the armed forces. Memorial Day is a tradition that dates back to the 19th Century. While many people celebrate the federal holiday with a barbecue and a day off from work, for those who’ve served in the military, it’s a special day to remember those who made the ultimate sacrifice. Arash Arabasadi reports for VOA from Washington.
Video

Video Kenya’s Capital Sees Rise in Shisha Parlors

In Kenya, the smoking of shisha, a type of flavored tobacco, is the latest craze. Patrons are flocking to shisha parlors to smoke and socialize. But the practice can be addictive and harmful, though many dabblers may not realize the dangers, according to a new review. Lenny Ruvaga has more on the story for VOA from Nairobi, Kenya.
Video

Video Rolling Thunder Run Reveals Changed Attitudes Towards Vietnam War

For many US war veterans, the Memorial Day holiday is an opportunity to look back at a divisive conflict in the nation’s history and to remember those who did not make it home.
Video

Video Female American Soldiers: Healing Through Filmmaking

According to the United States Defense Department, there are more than 200-thousand women serving in the U.S. Armed Forces.  Like their male counterparts, females have experiences that can be very traumatic.  VOA's Bernard Shusman tells us about a program that is helping some American women in the military heal through filmmaking.

VOA Blogs

World Currencies

EUR
USD
0.9152
JPY
USD
122.70
GBP
USD
0.6494
CAD
USD
1.2374
INR
USD
63.925

Rates may not be current.