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Page added on March 4, 2015
Russia’s economy isn’t in tatters
Western politicians and pundits should be more careful with their predictions for the Russian economy: Reports of its demise may prove to be premature.
Bashing the Russian economy has lately become a popular pastime. In his state of the nation address last month, U.S. President Barack Obama said it was “in tatters.” And last week, Anders Aslund of the Peterson Institute for International Economics published an article predicting a 10 percent drop in gross domestic product this year — more or less in line with the apocalyptic predictions that prevailed when the oil price reached its nadir late last year and the ruble was in free fall.
Aslund’s forecast focuses on Russia’s shrinking currency reserves, some of which have been earmarked for supporting government spending in difficult times. At $364.6 billion, they are down 26 percent from a year ago and $21.6 billion from the beginning of this year. Aslund expects $166 billion to be spent on infrastructure investments and bailing out companies, and another $100 billion to exit via capital flight and other currency outflows. As a result, given foreign debts of almost $600 billion, “Russia’s reserve situation is approaching a critical limit,” he says.
What this argument ignores is that Russia’s foreign debts are declining along with its reserves — that’s what happens when the money is used to pay down state companies’ obligations.
Last year, for example, the combined foreign liabilities of the Russian government and companies dropped by $129.4 billion, compared with a $124.3 billion decline in foreign reserves.
Beyond that, a large portion of Russian companies’ remaining foreign debt is really part of a tax-evasion scheme: By lending themselves money from abroad, the companies transfer profits to lower-tax jurisdictions. Such loans can easily be extended if sanctions prevent the Russian side from paying.
The declining price of oil is also less of a threat than many have warned. True, the Russian government’s revenues from energy exports will fall in dollar terms. But because Russia’s central bank has allowed the ruble’s value against the dollar to decline, the ruble value of the revenues will be higher than they otherwise would be. As a result, Russia no longer needs $100 oil to balance its budget — and the effect of lower oil prices on the broader economy will be muted.
Economists at the respected Gaidar Institute, for example, expect the floating of the ruble to roughly halve the negative GDP impact of the decline in oil prices. They estimate that Russian GDP will shrink by a moderate 2.7 percent this year, even if Brent oil trades at $40 (it traded last week at $61). That’s just a bit more optimistic than the consensus among 39 economists polled by Bloomberg between Feb. 20 and Feb. 25: On average, they see a decline of 4 percent.
Economic sanctions, which most forecasts assume will continue this year, are having less impact that many in the West would like to believe. Sergei Tsukhlo of the Gaidar Institute estimates that the sanctions have affected only 6 percent of Russian enterprises. “Their effect remains quite insignificant despite all that’s being said about them,” he wrote, noting that trade disruptions with Ukraine have been more important.
Granted, there’s no avoiding a significant drop in Russians’ living standards because of accelerating inflation. The economics ministry in Moscow predicts real wages will fall by 9 percent this year — which, Aslund wrote, means that “for the first time after 15 years in power,” Russian President Vladimir Putin “will have to face a majority of the Russian people experiencing a sharply declining standard of living.”
So far, though, Russians have taken the initial shock of devaluation and accompanying inflation largely in stride.
The latest poll from the independent Levada Center, conducted between Feb. 20 and Feb. 23, actually shows an uptick in Putin’s approval rating — to 86 percent from 85 percent in January.
It’s time to bury the expectation that Russia’s economy will fall apart under pressure from falling oil prices and sanctions, and that Russians, angered by a drop in their living standards, will rise up and sweep Putin out of office.
Western powers face a tough choice: Settle for a lengthy siege and ratchet up the sanctions despite the progress in Ukraine, or start looking for ways to restart dialogue with Russia, a country that just won’t go away.
19 Comments on "Russia’s economy isn’t in tatters"
apneaman on Wed, 4th Mar 2015 8:49 pm
I really hope the western powers do not ban RT and other non MSM media. I find the propaganda wars to be very entertaining…..Like this bit. Is it true? Who knows? It’s our lying oligarch media employees VS their lying oligarch media employees. What does it even matter anymore? They are going to do whatever the hell they want. This world is broken. Enjoy the show.
Just Business: US Grows Russia Trade While Urging EU to Back Off
Read more: http://sputniknews.com/europe/20150304/1019040184.html#ixzz3TTWgR2uj
Makati1 on Wed, 4th Mar 2015 11:16 pm
Funny. I haven’t seen any negative articles about the Russian economy or the loss of popularity of Putin in Russia, in all of the hundreds of articles I have read that could have mentioned those items, in the last year. The only negatives come from the UFSA ‘Ministry of Truth’ or one of their lapdog western colonies or the bankster cartel.
If you think Russians will revolt over a few minor inconveniences, you don’t have any perspective from the last 100+ years of Russian life or culture.
Besides that, WW3 will begin before any real problems happen there.
“US-NATO Preparing for War Against Russia: Holding Largest Arctic War Games in Decade; Training and Arming Georgia, Moldova, Ukraine”
“Despite Russian Warnings, US Will Deploy a Battalion to Ukraine by the End of the Week”
“Western Leaders Hint At More Russian Sanctions Over Ukraine”
“US govt issues logistics support tender for 300 military personnel in Ukraine”
“Playing Chicken with Nuclear War”
“The Rise of a ‘Democratic’ Fascism”
“The Scourge of US-Installed Fascism in Europe’s Heartland. The Looming Dangers of War with Russia”
And on and on. The war drums are getting louder…
GregT on Wed, 4th Mar 2015 11:34 pm
“The war drums are getting louder”
And the people beating those drums of War are only in it for themselves. They could care less about ‘us’. They are even willing to put our children, and our countries in harms way, just so that they can continue to maintain control over the USD debt slavery system, and the military industrial complex. We have been repeatedly warned throughout history, by many of our greatest leaders. The threats imposed by our own western dogs of war will ultimately end very badly for each and every single one of us.
People need to wake up, and soon. If the DC oligarchs are allowed to continue to lead us down this path, we are all going to suffer extremely dire consequences.
Rodster on Thu, 5th Mar 2015 4:39 am
Well said with the 2 previous comments !
Davy on Thu, 5th Mar 2015 7:13 am
Folks, some morning cat piss smell. I apologize for that someone let the feral cat on to the site. Makster Russia is hurting. Russia is hurting on multiple fronts. The Ruble is hurting along with Russian companies. The Anatoly six vodkas is hurting. Russia economy is heading into a recession. The absorption of Crimea into the Russian economy is expensive. The business disruptions from the Ukraine civil war is probably the worst problem for Russia. The refugees from eastern Ukraine are a problem. Russia is cranking up its defense spending at a time when the economy is contracting from oil, sanctions, and a generalized global slowdown for all commodities that creates economic dislocations.
For someone to say Russia is not hurting is clearly part of an agenda. For someone to say all is fine in Russia is either lying through their teeth or lacks understanding of economics? In Mak’s case it is both. This is not the first time I have seen his anti-western message. This is not the first time I have seen him disregard economics and finance. Mak is pure agenda and he hurts his cause when he blatantly disregards the facts and selective use of facts.
Russia is taking bold step that may pay off but they are not there yet. Putin is a master politician. His policy to enhance the brics is going to pay off eventually if allowed to. IMA this will benefit global BAU because BAU needs diversity of the western dominated financial systems. We saw what happened in 2008 when the WS contagion spread. Russia is a major energy power. A country as large as Russia, with the resources Russia has, with the education of its people, and finally a global military power gives Russia a critical too big to fail status.
Putin is a liar, thief and criminal. His Russian economy is a basket case in some ways being reliant too much on commodities and not economically diversified. Russia is being looted by the oligarchs for personal profit. Yet, isn’t that what is happening in the west in similar and different ways? Yes? The problems in Russia with the plutocrats, corruption, manipulation and disregard for laws is now global and worsening. All countries are in the same boat.
BAU is nearing a bifurcation and Russia is gearing up to go regional and break away from the western dominated system. It will not get their as long as BAU is the dominant system. Putin’s gamble is hurting Russia and will continue to hurt. Even Russians fellow brics are not decoupled nor will they decouple from BAU and the western system. They can do minor niche decoupling but the global system is about money flows or the 1%er plutocrats that know no borders and travel where the conditions profit them the most. The brics have a comparative advantage to BAU as the western countries have. To change that situation is to lower economic activity and bring down BAU. Do you think China is going to stop exporting to the west for their friend Russian? Hell no. This is true of the other brics in their own particular way. Brazil will continue to export commodities to the west.
Russia is taking a bold gamble that is one man’s gamble. Putin is full of pride and hubris and his gamble is educated, bold, and probably will succeed when BAU fails. BAU’s failure is likely within 5 years. I am not sure Putin can make it that long especially with oil prices likely remaining stuck bellow an optimum level for Russia. It appears oil demand and supply destruction is in a vicious cycle down. This will be Putin’s undoing not western sanctions. The west has no chance of bringing Russia and Putin down. If Russia fails it will be Putin that will bring Russia down.
Revi on Thu, 5th Mar 2015 7:40 am
Russia has oil.
GregT on Thu, 5th Mar 2015 8:05 am
Yes Revi, and a population of people that are used to living with much less consumerism, and a much smaller energy and environmental footprint.
GregT on Thu, 5th Mar 2015 8:08 am
Yes Revi, and a population of people that are used to living with much less consumerism, and much reduced energy and environmental footprints.
Lomax on Thu, 5th Mar 2015 8:22 am
While Russia is not falling apart it is I agree with Davy’s points, it is nonsense to say that they do not have deep and real problems.
I have read time and time again that Russia is investing this or that, but it is all central planning that is inefficient and often self defeating.
The oil price being low is a problem, and the war he has encouraged on his own border is a massive drain on trade. Too many decisions are being taken for pride rather than profit and this will hurt Russia’s long term prospects.
Which is a shame as we have enough problems already without a Russia that is generating more, a strong Russian economy importing in goods and services from the west would have been a bit plus point, I think they could have dominated the region economically if they had followed that path.
GregT on Thu, 5th Mar 2015 8:45 am
Lomax,
Economies globally are going down the crapper. Nothing now will stop that from continuing to accelerate. Russia does not need the West, as much as the West needs Russian oil and natural gas.
Davy on Thu, 5th Mar 2015 9:13 am
I disagree Greg. It is pretty much the case we are all profoundly in need of each other with Russia, the other brics, the west, and the third world included. It is truly a dangerous situation for us all. What good is Russia’s oil and gas in a collapsed world when a greatly reduced economy can’t afford Russian energy? Russia will not be able to produce oil like it is now without economic means.
No, we are all in a sinking ship without winners and losers. This is where the west is at greatest fault. The western lobby against Russia is taking us all down a very dangerous path. The anti-Russian western lobby will likely destroy BAU and themselves included. This may or may not be apparent to them. These actions may be organized actions with the understanding of collapse in mind.
I think Putin sees the end near and that is why he is gambling on a regional Russian power base. I am just an outspoken doomer with no credentials but I can’t see any winners from this geopolitical fracturing. Maybe these folks that are playing these games believing they will improve their chances or they feel the inevitable is much further down the road.
It is obvious most of the top leadership across the spectrum of economic powers of BAU are human exceptionalist believing in the primacy of technology and complexity. Many believe BAU can descend and technology and complexity hold. These folks probably feel even if there is a crisis they can come out ahead with a changed BAU that many don’t survive but a BAU type II nonetheless. This is evil hopium and ludacris.
I believe the only winner will be Nature. Yet, I have said numerous times humans are just a tool in Nature’s cycles. I wish I could say Natures critters will benefit but it is likely billions of desperate humans are going to be tough on Nature’s critter too. Eventually on a longer term time scale Nature’s critters will be back to a world with a greatly reduced human foot print or no humans. They will then thrive again albeit in a drastically post human evolutionary environment. Humans have made their evolutionary mark for a mellinium.
GregT on Thu, 5th Mar 2015 11:03 am
Davy,
I see globalization coming to an end. I see a future for those of us that embrace localization and community cooperation. Communism if you like. Capitalism has almost run it’s course.
I believe that our western leaders are aware that these changes must take place, and they are making plans to maintain control over the people through the erosion of our constitutions, our civil liberties and our freedoms. I see the rise of fascism in the west, and a police state. The ruling classes will be able to afford oil for a long time into the future. The ever shrinking middle class, will not.
Davy on Thu, 5th Mar 2015 11:28 am
Greg, you know I enjoy our conversations so when I debate you it is as a friend. I highly respect your viewpoints.
I see fascism as one result warlordism, dictatorships, military juntas and finally localize mad max-athons are some others. Notice he I left out representive democracy that comes with a growing pie. I think most here agree the pie is shrinking and that will last for generations.
I am not yet convinced we will see ruling classes like we have now. I think much depends on if we have a quick deep collapse or a long emergency. In a long emergency we may see it. I think a quick collapse will wipe the slate clean. I compare this to ecosystems that fail and are recolonized.
In any case all this is speculation on both our parts. You and I are loath of the current leadership arrangements pretty much across the board. I think if push came to shove even Putin’s rule would be rejected by you.
A part of me wants a clean slate but a part wants some stability from a long emergency. I doubt I can have both. There is not much I can do either way but wait.
GregT on Thu, 5th Mar 2015 12:13 pm
Davy,
I do not believe in nations. I do not need someone else to lead me. I don’t believe that people have the rights to rule other people. I don’t like Vladamir Putin, as a matter of fact I despise him. I believe that somehow your belief in nationalism is what is keeping you from understanding my point of view.
Human nature is what it is, and it isn’t going to change anytime soon. The founding fathers, IMHO, attempted to write a constitution that was the best that the world has ever seen. They understood that humans beings are inherently greedy, ruthless, and cruel. They embraced freedom, liberty, justice, and democracy. They believed in self determination, and the rule of law.
As has always been the case throughout history, the psychopaths have figured out a way to rise to the top. They have stripped that constitution and have changed the rules to better serve themselves. If people are not willing to fight for that constitution, they are destined to lose it.
As Thomas Jefferson wrote; The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.
The patriot does not follow the leaders, he questions them, and he holds them accountable for their actions. It is morally wrong to take another human life, except in the case of self defence. The US military is no longer acting in a defensive posture, they are acting aggressively, in an offensive manner. I do not support Putin, but I support military adventurism, empiricism, and the continual slaughter of millions of innocent people even less.
If it were possible, I would remove myself from the masses of aggressive and uncivilized people, I would build a community based on mutual respect for one another, and of nature itself, and I would live my life in harmony within the natural world. As it stands now, I would probably be imprisoned,
GregT on Thu, 5th Mar 2015 12:15 pm
or worse, they would probably murder me too, for being a threat to their control over others.
MKohnen on Thu, 5th Mar 2015 3:56 pm
Let’s get one thing straight: People will say Russia is too dependent on resources. FACT: We are all dependent on resources. Without them, all economies are in the dust.
Putin believes in the Russian nation. Obama believes in the US nation. Harper believes in the US nation and Israel… oh, and Canada, I guess. But above all they believe in money! In Power! And all those things are like every other religion, they are myths! Stories people like to make up and believe because it gives them power over others.
The only thing real is resources and the individual. As such, when resources become the issue, all other illusions will be swept away. So the arguments about Americans, Chinese, Russians, etc. are pointless, yet eat up a lot of bytes.
apneaman on Thu, 5th Mar 2015 5:21 pm
The Harper government and evangelical capitalism
http://rabble.ca/news/2015/02/harper-government-and-evangelical-capitalism
JuanP on Thu, 5th Mar 2015 7:25 pm
This article is very close to how I believe things to be in Russia at the time. I didn’t find any mistakes or inaccuracies, though I am not familiar with all the numbers contained in the article, I am familiar with most, and those I know are accurate.
Russia’s 2015 federal budget was made to balance at an average of $60 per barrel and an average of 60 Rubles per dollar for 2015.
Russia is not going anywhere, and neither is Putin. We need to accept it. The smart thing for all parties would be to refrain from further escalation and aggressions. I fear exactly the opposite will happen.
GregT on Thu, 5th Mar 2015 7:29 pm
Religion is playing a much larger role in global geopolitics than most people realize. We in the West have lost religion for the most part, and not by accident. There has been a concerted effort in Canada and the US to undermine religion since the 70s. The same cannot be said for the vast majority of people in the rest of the world.
All of the focus is on Israel, and more specifically the Dome on the Rock. Anyone that has read Bible prophesy will understand why. These beliefs are not limited to Christianity, they are also held by Islam, and by the Jews.
Whether or not there is any truth to these beliefs, is an entirely different subject. There are far more people on this planet that believe in the second coming of Christ, and the Kingdom of God on Earth, than people that do not believe so. This is having a huge influence on the geopolitical landscape around the globe. Something that most of us here in the West are not even aware of.