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Sliding ruble to drag Russian economy into recession

Published time: February 20, 2014 09:51
RIA Novosti/Alexey Kudenko

RIA Novosti/Alexey Kudenko

Russia’s GDP growth turned negative in January, with the lowest investment since 2010. Analysts say uncertainty surrounding the ruble, which hit its all-time low against the euro on Wednesday, is weighing on the economy and could drag it into recession.

Russia’s GDP shrank during the first month of 2014, though so far there are no exact numbers, a source told the Vedomosti newspaper.

Inward investment slid 7 percent year on year in January, as real income was down 1.5 percent and wages grew the slowest since 2009, according to Wednesday's report by Russia’s statistics service Rosstat.

Retail growth also slowed to a four-year low at 2.4 percent.

The investment slump, slowdown in consumer demand and a real fall in personal income is all very alarming, said Alexander Morozov from HSBC.

“Even if we don’t fall into recession, we shouldn’t account for an economic recovery,” Morozov said. Though a recession is now a real threat for Russia, it’s too early to make any far–reaching conclusions, as technically it is defined as two quarters of economic contraction, the HSBC analyst explained.

“My forecast for investment was extremely pessimistic – minus two percent. And given such a sharp slowdown in retail, I don’t exclude that the economy is de-facto in recession,” says Evgeny Nadorshin, an economist from AFK Sistema.

Weak ruble, banking 'clean -up' weighs things down

Currency operations have become more attractive for Russians than economic activity, as the Russian ruble is being extremely volatile, explains Natalia Orlova from Alfa-Bank. This is a bad signal, as similar things were happening between the autumn of 2008 and the start of 2009, Orlova said.

“Everybody has stopped dead, nobody knows what will happen with the ruble,” agrees Valery Mironov from the development center of the Highest School of Economics.

Ruble devaluation will benefit Russian exporters, but it won’t have any effect on investment, as the companies will keep their money in dollar accounts abroad, Mironov said.

On Wednesday the Russian ruble plunged further in initial trading, hitting another record low against the euro. The currency dropped below 49.0 to the euro for the first time, to show a fall of 8 percent so far this year. The euro was buying 49.01 rubles, and the dollar rose to 35.61 rubles. Analysts say the recent fall was caused by the announcement by Russia’s Ministry of Finance that it would buy about $6 billion (212 billion rubles) from the market by the end of May to transfer additional oil revenue to the Reserve Fund.

The so–called banking “clean-up” in Russia was another huge blow to the economy, as the country’s banks have cut lending and people are shifting their savings from smaller banks to big state-owned ones, Nadorshin said. In December banking deposits grew at the slowest rate in 13 years, with the country’s biggest lender Sberbank being accountable almost for the entire growth, Vedomosti reports.

Comments (39)


Boris Algebra 03.03.2014 13:50

"Sliding ruble to drag Russian economy into recession"

If this was true two weeks ago, how much truer must it be today?

Real ity is, Russia cannot fight the West economically. I'm betting that Putin is looking for a way to scale down his involvement while keeping face. Some kind of an agreement will be reached, preserving the territorial integrity of Ukraine. As for Yanukovich, he's a goner.


T J 24.02.2014 15:40

ToniL 24.02.2014 14:36

So clearly, your early retirement riff is FoS. My question was simple enough.

In other words, it's a choice I'd make again over yours: retiring early to a tent and a dirt floor.


My home was bought and paid for over ten years ago. My cars were paid for in cash and I'm debt free. I support you in your choice to work until you're old and grey.
Remember it is your thoughtful plan that has made it possible.


T J 24.02.2014 13:49

ToniL 24.02.2014 13:38

Yo u didn't answer my question. What investment vehicle do you use to provide the cash you live on?


Your first problem is that you refuse to invest in yourself. You shoot yourself in the foot and wonder why you can't run a marathon. You expect a magic pill to do all the work for you, so you don't have to sacrifice. It's called growing up, setting goals and living under your means.

View all comments (39)
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