Russia's economy is in full melt-down, UK's Guardian reports:
Russia's dependency on oil is pushing the country's economy into a tailspin.
Oil peaked at $147 a barrel in July but has since plunged as low as $35
a barrel. As a result of the plummeting oil price and the global
financial crisis, gross domestic product shrank by 8.8% in the 12
months to January, the rouble has lost one-third of its value since
September and unemployment is expected to rise to 10 million by the end
of the year. The Kremlin has spent more than $200bn of its reserves to
cushion the devaluation of the rouble and avoid public panic. [Russia's GDP is $2.2T (2008 est.), so they spent the equivalent of 10% of GDP to bolster their currency--FT]
Neil Shearing, emerging Europe economist at consultants Capital Economics, believes the situation is going to get much worse. "The news from Russia has gone from bad to worse in recent weeks. The economy looks likely to contract by 5% this year, which would be close to the drop in output witnessed during the 1998 rouble crisis," he said, referring to the year when the government defaulted on its debts, sending shockwaves through the global financial system. "In contrast to the 1998 crisis, a weak external environment makes a sharp bounceback in growth unlikely."
"The situation is worse than at the beginning of the 1990s," said Ilya Roytman, president of IBR Consulting in Moscow, which helps companies such as Nestlé set up shop in Russia. "Before it was just in Russia. Around Russia there was a stable economic climate which helped us. But now there is a global economic crisis and because many governments have protectionist values it will not be possible to borrow resources."
Unemployment is widely expected to soar to 12% this year from 6.3% in 2008 as firms struggle to access finance. "This will spell disaster for an economy in which private consumption accounts for over half of GDP," said Shearing. About 500,000 Russians are waiting to be paid wages which are late and since inflation is running at 13%, their purchasing power is slipping rapidly.
Stephen Dalziel, executive director of the Russo-British Chamber of Commerce (RBCC), believes that the financial crisis in Russia is much worse than in Britain.
"I think that the problem is that they were unprepared to the point of being arrogant," he said. "When sub-prime happened in 2007 they were arrogant because they thought it was a western thing. They said it wasn't like 1998 and then it suddenly hit them."
He believes that the situation for businesses is far worse than 1998.
Neil Shearing, emerging Europe economist at consultants Capital Economics, believes the situation is going to get much worse. "The news from Russia has gone from bad to worse in recent weeks. The economy looks likely to contract by 5% this year, which would be close to the drop in output witnessed during the 1998 rouble crisis," he said, referring to the year when the government defaulted on its debts, sending shockwaves through the global financial system. "In contrast to the 1998 crisis, a weak external environment makes a sharp bounceback in growth unlikely."
"The situation is worse than at the beginning of the 1990s," said Ilya Roytman, president of IBR Consulting in Moscow, which helps companies such as Nestlé set up shop in Russia. "Before it was just in Russia. Around Russia there was a stable economic climate which helped us. But now there is a global economic crisis and because many governments have protectionist values it will not be possible to borrow resources."
Unemployment is widely expected to soar to 12% this year from 6.3% in 2008 as firms struggle to access finance. "This will spell disaster for an economy in which private consumption accounts for over half of GDP," said Shearing. About 500,000 Russians are waiting to be paid wages which are late and since inflation is running at 13%, their purchasing power is slipping rapidly.
Stephen Dalziel, executive director of the Russo-British Chamber of Commerce (RBCC), believes that the financial crisis in Russia is much worse than in Britain.
"I think that the problem is that they were unprepared to the point of being arrogant," he said. "When sub-prime happened in 2007 they were arrogant because they thought it was a western thing. They said it wasn't like 1998 and then it suddenly hit them."
He believes that the situation for businesses is far worse than 1998.
And 1998 was bad...
