News / Europe

    Russian Economy Killers: Oil and Sanctions

    FILE - A sign shows currency exchange rates in Moscow, Russia, Aug. 21, 2015. Oil prices and economic sanctions have hit the country hard.
    FILE - A sign shows currency exchange rates in Moscow, Russia, Aug. 21, 2015. Oil prices and economic sanctions have hit the country hard.

    Russian President Vladimir Putin gets a bad report card, even a failing grade, for his handling of the economic crisis in his country, according to 27 percent of analysts who participated in a major survey conducted by Bloomberg Business.

    These are hard times in Russia, with the collapse in oil prices, economic sanctions against the country for its actions in Ukraine, the collapse of the ruble and significantly impaired economic growth. 

    Russia's growth started to decline rapidly in the first quarter of 2012, well before oil prices fell or economic sanctions took hold. The World Bank estimates that by 2017, Russia's GDP will be smaller than it was in 2012.

    Russia's former finance minister, Alexei Kudrin, says he believes the economy is likely to decline in 2016, although he thinks growth is possible in 2017. 

    Others see growth even earlier.

    "The worst, I think, is over at this point,” said world-renowned Russian expert Timothy Frye of Columbia University's Harriman Institute. “From 2012 to 2015, economic growth in Russia decelerated at a rate of around 1.5 to 2 percent a year. The last quarter, we've seen the economy start to stabilize and adjust to the new reality of lower oil prices.

    FILE - Russian President Vladimir Putin’s handling of the economic crisis received low marks from 27% of analysts, a recent survey shows.
    FILE - Russian President Vladimir Putin’s handling of the economic crisis received low marks from 27% of analysts, a recent survey shows.

    "So, although the consensus forecasts are for around zero or around 0.5 percent or maybe 1 percent growth in the coming year, what's really concerning about the economy going forward is that nobody is predicting rates of economic growth beyond 1 percent, 2 percent, barring some really significant change in government policy," he added.

    Frye believes that people don't expect those government policies to change very much because they would come at great political cost.

    Government pressure

    So what to do about it?

    There has been a lot of arm-twisting by the Russian government to have major industries, such as Gazprom and Rosneft, limit their foreign currency holdings to help prop up the ruble.

    The government also has been pushing for help from the oligarchs who have made billions — primarily in the oil and gas industries — since they were privatized.

    But many interest groups in Russia have distinctly different views about nationalization in the economy, said Frye, who also teaches at a university in Moscow.

    "There are a lot of Russian companies that are suffering because of the sanctions,” he said, “but there are also some companies in Russia that are benefiting from Russia's turning away from the global economy.  For example, agriculture is a sector that has benefited somewhat from the ban on European food goods being brought into Russia, and they've experienced some moderate rates of economic growth."

    Investing across borders

    This also applies to private foreign investment.

    For many Russian billionaires, there has been no better investment than real estate in London, New York and Paris.

    Hundreds of millions of dollars have left Russia and wound up in apartments and condos, especially in New York's strip of high-rise buildings along 57th Street and in the Time Warner Center. Many are absentee landlords who use the properties for rental income.

    FILE - Russian billionaire Dmitry Rybolovlev paid $88 million for a penthouse just off New York's Central Park, reports show.
    FILE - Russian billionaire Dmitry Rybolovlev paid $88 million for a penthouse just off New York's Central Park, reports show.

    According to one report, Russian billionaire Dmitry Rybolovlev paid $88 million for a penthouse just off New York's Central Park. Neighbors complain that such a purchase by foreign investors drives up real estate prices in cities the purchasers have no intention of living in.

    Ed Mermelstein, an international investment lawyer, helps Russian oligarchs in their quest for investments in New York — primarily real estate.

    His view is that the Putin government is putting pressure on people who are moving money out of Russia.

    "The idea [of the Russian government] is to, in many cases, repatriate much of the funds that have left Russia,” he said. “In many cases, the way they have left the country is not something the government was very happy about in hindsight."

    It is clear, however, that new money is not leaving Russia, Mermelstein added. 

    Putin's poll ratings are still sky-high in Russia. But if the economy continues to drag, such high poll numbers could be short-lived.

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    Comment Sorting
    Comments
         
    by: Tony Papagallo from: Madrid
    February 02, 2016 12:56 PM
    American's greatest gift is talking, while Russia is a nation of 'action' America is a nation of 'hot air'
    you dont have to be Einstein to see where thats leading too.

    by: Dusseldorf from: Estonia
    January 07, 2016 8:38 AM
    I don't see how there could possibly be growth even next year. It seems the globe is headed into a recession and that doesn't bode well for anyone, especially a country already in one. Add to that their Asian partners look like they are decelerating (albeit still growing), sanctions are still on with Europe, Syrian intervention is still costing millions, oil is $33 a barrel and if it stays below $50 that's an issue. Really all they've done in the last year is sell a few missile systems to Iran, planes and misslies to China and various weapons to India. They are also going to help Iran drill for oil and build processing stations. Which will only further saturate the global supply and push down prices. So where exactly is growth coming from? Because I don't see it globally and I don't see it in Russia specifically.

    by: Igor from: Russia
    January 07, 2016 5:00 AM
    You can no longer be happy with your calculation of Russian economy because Russians is a great people and we will soon find the way out of difficulties. Wait and see.
    In Response

    by: Iurii
    January 07, 2016 9:27 PM
    Yes... Wait and see. It never turns out well for Russia. Russians are too stupid to want a better system of government. Until then, gangsters is what we get.
    In Response

    by: Marcus Aurelius II from: NJ USA
    January 07, 2016 4:25 PM
    Yeah Igor, it's like jumping off a cliff and then trying to find a way back on to it. Invading Crimea was the fatal step. MH17 rubbed Europe's nose in it. All of Putin's lies only made it worse. At this point they can debate MH17 until the cows come home. It no longer matters. Every candidate for President of the United States in both major parties promises to be tougher on Russia than Obama is. RT finds it difficult to get an American on their media who believes in and repeats Putin's lies. 75 rubles to the USD and rising, 33 USD bbl crude and falling. China's Yuan and stock market in free fall. That tells it all. Bad guys are losing big time. "Partners!" What a joke.

    by: Oleg from: United States
    January 07, 2016 3:52 AM
    "...Russian President Vladimir Putin gets a bad report card, even a failing grade, for his handling of the economic crisis in his country, according to 27 percent of analysts who participated in a major survey conducted by Bloomberg Business..."

    If 27% of analysts think that Putin did performed poorly at handling a crisis, doesn't it mean that 73% of economists think that Putin handled economy well?
    In Response

    by: Quoc Tuan from: Vietnam
    January 07, 2016 11:44 PM
    Sometimes you have to scarify your money and growth to achieve something great for your nation. I think Putin has acted in good sense and the majority of Russians support him. Russians is the people you cannot buy by money. I have strong hope that their difficulties will soon over because Russia is very important in the world.
    In Response

    by: Marcus Aurelius II from: NJ USA
    January 07, 2016 4:28 PM
    "doesn't it mean that 73% of economists think that Putin handled economy well?"

    You have to wonder what is wrong with those 73%. They should go back to where they got their MBA and get a refund on their tuition. Their instructors didn't earn it. They are like donkeys. You have to first hit them in the head with a two by four. That's to get their attention.

    by: meanbill from: USA
    January 07, 2016 12:04 AM
    The US Congressional Budget Office recorded the worst ten year GDP growth of 0.73 in the US economy in American history from 2008 thru 2013, even after the federal reserve pumped over 7 trillion dollars to prop up the US economy along with zero interest rates, [proving], that Russia will survive a 0.50 to 1,50 GDP growth without spending trillions of rubles too prop up their economy with zero interest rates through the next 1 or 3 years? .. The Russian people are hardy and strong, and they'll survive whatever hardships they have to for a stronger and greater Russian motherland? .. No matter what the so-called experts say? .. that's my opinion?
    In Response

    by: Anonymous
    January 07, 2016 6:07 PM
    Russia will not recover until Putin stops spending on wars & starts to understand how his policies effect the economy. Whenever you have a dictatorship & kleptocracy your economy will stagnate after 8 years. Democracies do a lot better economically.

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