The Russian economy (catch all)

[Firn]

I found the official statement of the Bank Rossii pretty downbeat. As it is an official document and quite informative I will quote it in full. I will underline some of most important stuff.

On the Bank of Russia key rate

On 25 April 2014 the Bank of Russia Board of Directors decided to raise the key rate to 7.5 percent per annum due to higher inflation risks. The probability of inflation exceeding the 5.0% target at the end of 2014 has increased substantially. This has been caused by more pronounced than expected pass-through effect of the exchange rate dynamics on consumer prices, the rise in inflation expectations, as well as unfavourable conditions in the markets for some goods. The Bank of Russia does not intend to lower the key rate in the coming months. The Bank of Russia estimates that the adopted decision would ensure the decline in inflation to no more than 6.0% by the end of 2014.

In March - April 2014, the year-on-year consumer price growth rate rose and stood at 7.2% as of 21 April 2014. Weekly inflation has persisted at 0.2%. Inflation acceleration has been mainly caused by the larger than expected impact of exchange rate dynamics. Unfavourable conditions in the markets for some goods, such as dairy products, sugar, pork, and petrol, also have contributed to higher inflation rates. Some additional inflationary pressure has come from a temporary surge in consumer demand for non-food goods amid the rise of inflation expectations. As a result, there was the increase in prices for a wide range of goods, including domestically produced goods, as well as services. In March 2014, core inflation accelerated to 6.0% from 5.6% in February.

The current economic slowdown is predominantly structural by nature and thus does not exert any noticeable downward pressure on inflation. Historically low unemployment rate constrains economic growth potential. Due to demographic trends the impact of this factor will persist in the long run. Utilisation of commercially viable production capacity remains relatively high. Labour productivity growth is sluggish, while fixed capital investment continues to contract because of declining profits in the real sector, limited access to long-term financing in both international and domestic markets, as well as low producer and consumer confidence. Uncertainty about international political situation also hampers production and investment. Besides, weak economic activity in most countries, which are Russia’s trading partners, restrains the economic growth of Russia. At the same time, persistently high oil prices have a stabilising effect on the domestic economy and public finance.

In March - April 2014, household rouble deposit rates began to grow. This was caused by the conversion of funds to foreign currency due to higher inflation expectations and by increasing bank funding costs, inter alia, as a result of the Bank of Russia’s decision to raise the key rate in March 2014. In addition, banks tighten lending conditions, in particular, by increasing loan rates. At the same time, weak economic activity restrains demand for loans and respectively curbs a rise of interest rates on loans.

According to the Bank of Russia projections, a year of 2014 will continue to witness a downward trend in economic growth. Boost to economy from the observed rouble depreciation will be limited. Amid economic uncertainty and declining producer confidence there is a strong probability of a reduction in fixed capital investment. Combination of slower growth in real wages and a decline in household lending growth rates will have a dampening effect on consumer activity.

Inflation will stay around the current level until the mid-2014. In the second half of the year, consumer price growth will decelerate as a result of lower planned hikes in administered prices and tariffs, falling inflation expectations, and the aggregate output of goods and services remaining below potential. Since monetary policy affects the economy with a lag, the probability of inflation exceeding the 5.0% target at end-2014 has increased substantially. The adopted decision on the key rate would ensure the decline in inflation to no more than 6.0% by the end of 2014 and help to maintain the appropriate balance of inflation risks and the risks of further economic slowdown. In the medium term the effect of factors behind the observed acceleration in consumer price growth will be exhausted and in the absence of any new shocks to the economy inflation will hit the target levels set in the Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016.

The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 16 June 2014. The press-release on the Bank of Russia Board of Directors’ decision is to be published at 13:30, Moscow time.

I underlined more then I wanted, but it is a highly condensed statement. Love the CentralBank-speak. Some of it is new, like the lower then planned adm. hikes of prices while a good deal has already been discussed here, like the limited boost (what industry, what services?) to the economy by the rouble deprecation. Points rightly to the demographic situation and the currently low unemployment as limiting further growth which I didn't take into account as much as I should have. I'm sceptical about inflation falling below 6%. If it does it will likely do so for bad reasons...

[OUTLAW 09]

This doesn't surprise one, davidbfpo. Good stuff as usual kaur. Outlaw, a Russian rating agency will indeed carry little weight as most will (rightly) assume that it is, if not controlled, heavily influenced by Russia's leader.

In Slawjansk herrscht Terror is an German article by a German Russian translator with ties to Slawjansk.



It talks about the terror spread by the speratist gunmen, some with criminal backgrounds like in Crimea, influenced by Moscow and it's crimes against civilians. A main target of it's criticism is the language used in main-stream German media which doesn't call the terrorists terrorists but pro-Russian activists.

Nothing new and surprising there. People were kidnapped, tortured and murdered by the former regime supported by Russia, people were kidnapped, tortured and sometimes murdered in Russian-controlled Crimea and people get kidnapped, tortured and murderd by terrorists supported by Russia in Eastern Ukraine. Almost business as usual.

We will see how which results this terrorist campaign waged by Putins minions will give in the long run.

Firn---IMF stated today as released by Interfax;

1. Russia is in a recession
2. capital outflow has hit the over 100B USD up in the last two weeks from 65B
3. GDP is estimated at right now .02% and sinking to potentially zero or lower if that is technically possible

Also notice not a single reverse sanction coming our of Moscow simply because they have not a single pressure point outside of US businesses doing business in the energy sectors---which Russia needs their actual help on so again no pressure points---so much for a superpower wantabe.

http://www.kyivpost.com/content/ukra...ts-345701.html

[JMA]

Don't listen to the spin, this the truth about Germany's policy towards Russian expansionism:

Ukraine crisis: Russia sanctions would hurt Germany's growth

The classified report, prepared by the European Commission and leaked to a local magazine, warns that the sanctions could slash forecast growth for the German economy this year by almost one per cent, moving the country closer to a downturn, with grim implications for a weak eurozone.

A downturn? Rather sell out a few million people than have that.

Funny how it always takes the potential of economic pain for a nation's true colours to be exposed for all to see.

[kaur]

German export to Russia.

Impact on Germany is real, but limited

The DIHK says some 6,000 German firms are currently active in Russia. For the big, DAX-listed blue chips, Russia is just one market of many, and so the impact of the conflict over Ukraine is limited.
"Our Russia business is important, and in recent years our sales there have been growing faster than in most other markets, but it's not overwhelmingly big yet," says Tobias Baumann, a German Chamber of Industry and Commerce (DIHK) expert on Russia. He notes that German exports to Russia account for only about 3 percent of Germany's total experts. A Russia mired in recession wouldn't have dramatic consequences for German business. Leading economic think tanks estimate a 3-4 percent economic downturn in Russia would result in a mere 0.3-percent dip in Germany's gross domestic product (GDP).

http://www.dw.de/subdued-business-pr...en-eu-2092-rdf

[Firn]

A long time ago I worte that the Russia economy and the Western political willpower are the central 'outside' elements in this current conflict which might go long. Obviously they are interwoven with many other aspects outside of Ukraine, such as the economic developments. Germany and Merkel play a key role in this conflict and the German economy is one most linked with Russia out of the big players.

After a couple of weeks I looked again at a live-blog, a sometimes pretty useful instrument, in this case from the Zeit

(10:15) Die Ukraine-Krise kostet die deutsche Wirtschaft viel Geld. Im ersten Quartal 2014 brachen die Exporte nach Russland gegen den allgemeinen Trend um 13 Prozent ein. Damit wurden nur noch Waren im Wert von rund 7,6 Milliarden Euro dorthin geliefert, wie aus Daten des Statistischen Bundesamtes hervorgeht. Die gesamten Exporte waren von Januar bis Maerz dagegen um 3,1 Prozent gestiegen.

Damit verschaerft sich der im vergangenen Jahr begonnene Abwaertstrend erheblich: 2013 waren die Ausfuhren nach Russland bereits um fnf Prozent auf 36 Milliarden Euro gefallen. berdurchschnittlich stark leiden derzeit die Maschinen- und Autobauer. Die Lieferungen von Maschinen fielen um 17 Prozent auf 1,9 Milliarden Euro, die von Fahrzeugen um 18 Prozent auf ebenfalls 1,9 Milliarden.

Neben der Verunsicherung von Unternehmen und Verbrauchern durch die Ukraine-Krise drfte der Kursverfall des Rubel dabei eine wichtige Rolle gespielt haben. Er war im Februar und Mrz auf ein Rekordtief gefallen, nachdem Anleger massenhaft Geld aus dem Schwellenland abgezogen hatten. Das macht deutsche Waren teurer.

Noch staerker brachen die Exporte in die Ukraine ein, wenn auch auf deutlich niedrigerem Niveau. Sie gingen in den ersten drei Monaten um rund 26 Prozent auf 967 Millionen Euro zurck. Auch die Whrung Hrywnia war auf Tiefstnde gefallen.

The German exports to Russia fell 13% in Q1, after a 5% reduction in the same timeframe in 2013. The weakness of the Ruble does in my opinion explain most of it, which in turn was caused by Putin's aggression. There is no doubt that the Russian economy is suffering increasingly from many problems outlined before.

Despite much of the media reporting and high amount of trading compared to the other large EU countries Russia is for Germany,compared to the EU, the US or China a small market and economy. This is reflected by the overall rise in export by 3% despite Russia's troubles.

[davidbfpo]

This thread was requested to cover the position of the Russian economy and its international transactions. A large number of posts have been removed from the Ukraine thread.

As will be clear the Russian economy is fragile, largely due to the dependence on gas & oil and to a lesser extent gold exports.

There are a number of current, seperate threads on Russia covering politics, the military, terrorism, politics & power and more.

[Firn]

VTB Bank Chief Slams Law Penalizing Visa and MasterCard, for good reasons. There are quite a few indications that Putins military adventures were initiated and are still controlled within a narrow circle of mostly ex-KGB men. Economic considerations had very little impact on the decision making, which clearly surprised many in the Western world which believed in the 'change by trade' or at least stabilization by economic integration.

Andrei Kostin, head of Russia's second largest bank VTB, on Friday branded a recent law that could push Visa and MasterCard out of the Russian market "excessive," and said Russia could not risk losing the two U.S. payment systems.

Visa and MasterCard, which together process about 90 percent of payments in Russia, "must stay and work here. We shouldn't fall into 'Ura!' patriotism," Kostin was quoted by Interfax as saying in a panel session of the St. Petersburg International Economic Forum.

Keep in mind that this was at the very least partly addressed at the international business community. Personally I think that whatever the intention, there is more then some truth in his words, especially after the latest numbers bv VTB which were rather grim.

VTB's shares fell 3 percent in Moscow.

The bank said its provision charge for bad loans more than doubled in the first quarter to 47.6 billion roubles ($1.4 billion), hitting net profit which fell to 400 million roubles - far below analysts' forecasts of 12.9 billion.

"They charged a lot (for provisions) and the cost of risk was far above our estimates," said Gazprombank analyst Andrei Klapko.

VTB's non-performing loan ratio jumped to 5.8 percent of gross customer loans from 4.7 percent three months earlier. Its retail bank VTB 24 has "considerably reduced approval rates for the riskiest customer segments", the bank added.

Return on equity (RoE) - a measure of a bank's profitability - sank to 0.2 percent from 8.1 percent a year earlier, putting it far below European peers.

I have no doubt that the Kremlin will indeed prop up VTB, as Putin promised, to avoid a big shock to the Russian economy. However with VTB reducing lending overall the economy will indeed suffer from capital, especially for the smaller private sector.

Russian President Vladimir Putin promised at an investment forum on Friday the government would help systemically-important banks by allowing them to convert subordinated loans to shares. That would boost their capital positions and free them up to lend more in support of economic growth.

"We are currently working with the government in relation to a potential conversion of subordinated debt provided in 2008-2009," VTB Chief Financial Officer Herbert Moos said on Tuesday. This would be converted into preferred shares.

"We expect that this conversion would materially improve our Tier One (capital) ratio and we expect that this conversion would be completed by end 2014," he said.

The CFO's name sounded interestingso I googled him. Born in Russia, he graduated from Kviev university and worked for Lehman Brothers, getting a degree from the LBS. His quote from April 2013 looks a bit unfortunate now, for which I can't blame him:

Unlike European banks, which tend to raise capital to fill holes in their balance sheets or respond to regulatory requirements, we will use the new capital to fund growth.

[JMA]

VTB Bank Chief Slams Law Penalizing Visa and MasterCard, for good reasons. There are quite a few indications that Putins military adventures were initiated and are still controlled within a narrow circle of mostly ex-KGB men. Economic considerations had very little impact on the decision making, which clearly surprised many in the Western world which believed in the 'change by trade' or at least stabilization by economic integration.

Considering the billions spent on 'intelligence gathering' by the US and western countries the failure to foresee an aggressive response from Russia supports the need to reform and restructure intelligence agencies. Does anyone think shutting down the CIA would have a negative impact?

[Fuchs]

quoting myself:

It's long overdue to recommend Krugman's blog post "Globalization
and Macroeconomics". These days experience a high tide for remarks
about how very much connected certain counties are economically
and how this affects the risk of war.

The sad truth is, the European countries were trading very much
(despite tariffs) prior to 1914, and the Great War still happened.

[Firn]

@Fuchs: I have read it some time ago and it should be clear that trade interactions don't put an end to war.

Personally I feel that there might be a (strong) tendency that beneficial trade integrations does indeed lessen the dangers of war between two entities. Of course there is always the danger that the guy(s) in power care much more about their personal goals, which can work for some time.

--------

The Ukrainian thread is locked and Crimea is right now doubtlessy under control by Russia so I will post it here.

Faced with spiraling price inflation, Crimean Prime Minster Sergei Aksyonov threatened price-hiking retailers on the peninsula with "coercive measures" and canceled licenses.

Since Russia annexed Crimea from Ukraine in March, the price of many goods has doubled, the head of Crimea's Trade Union Federation, Vladimir Klychnikov, told Interfax.

Aksyonov said retailers of food and medicines would be first in line for authorities' attention.

In the other thread it became quickly obvious that Crimea with it's 2M people is difficult to supply if the trade routes to Ukraine are cut or disrupted. The harbours lack capacity. Inflation is inter alia the logical consequence. The loopsided nature of the brave new Crimean economy was also a pretty safe bet. Tourism has been hit even harder then I imagined due to Putins adventures in Eastern Ukraine. Some time ago the NCC water channel was said to have been cut, we will see how that develops....

[Firn]

Today it seems the KyivPost has a rather sad article on the impact the lack of irrigation water has on the Crimean agriculture. As we saw a long time ago Crimea depends on the rest of the Ukraine for it.

Saidablyayev’s potatoes, like everyone’s crops in Pervomaysk, rely on the North Crimea canal. This Soviet engineering project of the 1960s-70s delivers 1.8 billion cubic meters of water annually from the Dnipro River in Ukraine to Crimea, providing over 80 percent of the peninsula’s water. Usually the canal sluices are opened in March, in time for spring sowing. This year, following Russia’s occupation of Crimea in March, and a Russian law incorporating this Ukrainian territory into the Russian Federation, Ukraine instead reduced the flow to the lowest possible volume of just seven cubic meters per second. Crimea has few water sources of its own, particularly in the north and southeast. Farms throughout these regions are now completely deprived of water for irrigation.

It will hit the Crimean economy very hard, especially those in the North where mostly Ukrainians and Tartars live. The lack of tourism will be felt mostly Russian-speaking areas, although Russia-speakers have a far higher share of public workers and retirees.

[Firn]

After the specific look at Crimeas economy it is well worth to give a glance at Russia's economy as a whole.

Service and manufacturing are contracting

SBC's Russia Services purchasing managers' index, or PMI — under which values above 50 signify growth, and below 50, contraction — fell to 46.1 in May from 46.8 in April.

The PMI figures — based on monthly polls of executives at 300 private companies — also showed that manufacturing output in Russia contracted for the fifth month running, though less swiftly than in the services sector, pulling the composite output index to a five-year low of 47.1.

Pension funds targeted to offset failed bond issues

State pension funds in Russia — where the greater part of the country's 2.5 trillion ruble ($71 billion) pensions pot is stored — have long been stoppered by laws that severely restrict their investment activities. But over the past year the wheels of reform have been turning, the Finance Ministry said, and the floodgates may be opened on Jan. 1, 2015.

The influx could relieve an economy on the edge of recession and with restricted access to overseas sources of finance in the aftermath of Russia's annexation of the Crimean peninsula from Ukraine in March.

Overall almost all of the economic news leads to the conclusion that Russias economy is growing at best slightly above zero. Personally I think that it is more likely that has already started a recession.

The longer Putin promotes terrorism against a neighbour, the more likely deeper economic damage at home will be.

[Firn]

An important statement by the Bank of Russia, which obviously has to make lots of hard choices, trying to find the least bad path through the difficult economic ground.

The Bank of Russia Board of Directors has decided today to leave the key rate unchanged at 7.5%. We have taken this decision despite the persistently high inflation rate, which currently stands at 7.6% on an annual basis.

The decision is based on the analysis of trends in the economy and the financial sphere, as well as the medium-term macroeconomic forecast.

Considering time lags in the monetary policy transmission mechanism, the effect of the earlier increase in interest rates on inflation has not yet been exhausted. The policy of maintaining the rate at the current level in the coming months will suffice to attain the target for consumer price index in the medium term. Nevertheless, we emphasise the existence of considerable inflation risks at present, namely, the risks of inflation falling slower than required for the downward path to comply with the medium-term 4% target. If these risks materialise, the Bank of Russia will continue raising the key rate.

Our previous press conference was held in mid-February when the market participants’ attention was drawn to changes in the policy of the US Federal Reserve (the Fed) and their impact on emerging market economies (EME). However, it was actually immediately after the Bank of Russia’s February monetary policy decision that geopolitical factors came to the fore. The unconventional situation that had emerged required unconventional measures from the Bank of Russia. That is why I would like to explain in greater detail how we view the developments of the past period and how they influenced our forecasts and today’s decision.

The BoR has to set it's key rate with two big conflicting problems in mind, very weak growth and high inflation. It seems that the inflation target has the higher priority, perhaps not surprising if you consider the recent Soviet and Russian history.

The four factors outlined by the BoR are well worth repeating:

1) A sharp increase in pressure on the rouble in early March
2) The acceleration of inflation
3) The slower growth of deposits and the banks’ rising dependence on refinancing from the Bank of Russia amid the accelerating demand for loans.
4) The slowing economic growth.

The most important long-term problem is of course factor four. I agree with the Governors words on it's structural nature:

Let me note that unemployment remains low, despite a considerable economic slowdown, which we observe today. This suggests that growth acceleration is impeded by structural factors. The main problem is stagnating labour productivity amid unfavourable demographic trends. In this context, the Bank of Russia expects a slow economic growth recovery in the subsequent years to 0.9% in 2015 and 1.9% in 2016. The positive contribution of investment will be observed to recover, while the influence of net exports may fall to zero or slightly negative values.

The 'geopolitical factors' mentioned earlier are of course doing their considerable part to weaken the Russian economy.

[Firn]

Why Economic Growth Doesn't Matter in Russia is the eye-catching title of an interesting piece by Vladislav Inozemtsev, professor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor-in-chief of Svobodnaya Mysl. It is always interesting to get a look from different angle.

Today's Russia is not a normal country. A significant portion of people who can adequately assess the situation either left the country or are leaving it right now. Many entrepreneurs sold their businesses to bureaucrats and pulled money out of the country, realizing the futility of their labors.

But as long as energy resources can be exported and the prices for them are high, the Russian government does not need to worry about the economy. Special budget reserves exceed $175 billion; the public debt is less than 2.8 percent of GDP, the budget still runs a small surplus, and even if it dips into red it may easily be balanced by a soft devaluation of the ruble since the export duties on oil and gas are denominated in dollars.

Of course, the problems are piling up — so sometimes they will come out. But both the speciality of Russia's situation and its difference from these in democratic market economies lies in the fact that the first alarm signals will sound when it will be too late to react. We will probably see a repetition of the dramatic events of the late 1980s — but, of course, this may not happen for awhile. Time during which economic problems will not preoccupy the Russian president — leaving him free to surprise the world once and again with his political follies.

Perhaps the key statement matches to a good degree what I wrote earlier: The Russian balance sheets looks strong but the economic prospects don't, if Russia is unable to reform it's economy. So far there is little indication for the latter.

So while leading Russian in the long run towards an economic trap, Putin has also lots of time to harm his and other countries in other ways. As outlined before it is key to distinguish between Putin's goals and Russia's interests. There are certainly distinct, even if hard to treat as such with the great personal concentration of power Putin enjoys...

[Firn]

Some Russians are feeling the price of Putins own success.

Patriotism spurred by President Vladimir Putin's annexation of Ukraine's Crimea still runs deep in Russia, but the cold reality of paying for the Black Sea region is setting in and threatens to test an economy brought low by Western sanctions.

In Tatyana's hometown of Taganrog, the request for hospital workers to sacrifice a day's pay was taken up by only a few - by those people, she says, who wanted to impress their employers.

"The bosses informed us of this in June in a tone which made clear they recommended it ... They distributed and asked us to fill out a form for the donation. People started complaining - why should they donate to Crimea?" said Tatyana, 52, who declined to give her surname for fear of retribution.

"In our department, not one of us made the donation and our boss understood because she was of the same opinion," she said by telephone.

Of course that is only a local snapshot of a large economy which is in deep trouble, even if the stock market bounced back, for now, in the recent months.*

Investment has all but dried up, forcing the government to dip into reserves meant for pensions to finance projects, and the government says it will sell a stake in Russia's state-controlled oil company, Rosneft, to cover some of the costs of developing Crimea.

Finance Minister Anton Siluanov had to backtrack after coming under fire for saying that all the funds accumulated in Russia's personal pension plans in 2014 had been spent on "anti-crisis measures" and on Crimea.

The next day, he said Russians "would lose nothing", but stopped short of saying whether the sum of $8 billion would be returned to the personal pension plans.

While such measures may take a while to hurt the population, Karen Vartapetov, an analyst at Standard & Poor's rating agency, said a more immediate danger was the stagnation of real disposable incomes, which show only 0.2 percent real growth (adjusted for inflation) this year.

"Zero growth of real disposable incomes against continuing growth of public sector pay indicates that salaries in the private sector and non-salary incomes are shrinking," he said.

"The economy outside the public sector has been stagnating."

I noted this increasingly strong divergence of the public and private sector earlier on a paper I cited. It is rather typical for oil states in which state power and ressource wealth are intertwined.

*Needless to say that over the last years those who invested in Russian securities lost a very large percentage compared to the world index.

[Firn]

Aid Elusive, Crimea Farms Face Hurdles

A rather in-depth look at the problems faced by the Crimean agriculture some months after the Russian invasion.

SIMFEROPOL, Crimea — Sergei V. Tur, a significant landowner, scowled beneath his desert camouflage cap as he watched a hulking combine chew through one of his golden barley fields, reaping part of what he predicts will be the best harvest in Crimea in three years.

The weather may be cooperating, but since the Russian annexation of the Black Sea peninsula in March, the political crisis has disrupted virtually every other aspect of farming — from irrigation to credit to exports.

“On a scale of one to five, we are at negative three,” said Mr. Tur, the head of the Association of Farmers and Landowners of Crimea, with 300 members among the largest 1,700 farms.

Russia has a terrible economic record in it's de-facto occupied territories as we noted earlier and the classic problems of it's economy are all surfacing, plus those specific to annexed Crimea:

Mr. Polyushkin, the agriculture minister, said produce trucks were waived right onto the ferry. Farm managers said that was news to them. Not only does the produce have to wait, but once the trucks get into Russia, Ukrainian license plates make them targets for constant stops, searches and shakedowns by the Russian police, producers said.

A steady parade of senior Kremlin officials, including Prime Minister Dmitri A. Medvedev and numerous ministers, have all promised help, farmers said. But little that is concrete has materialized.

“Russia talks about patriotism all the time, but they do not seem to be taking the simplest steps to promote Crimean goods,” said Gennadi V. Potabenko, a publicist working for Skvortsovo.

[Firn]

Russian Billionaires in ‘Horror’ as Putin Risks Isolation

It sounds a bit alarmistic, but it is worth a read.

If Putin doesn’t move to end the war in Ukraine in the wake of last week’s downing of a Malaysia Air jet in rebel-held territory, he risks becoming an international outcast like Belarus’s Aleksandr Lukashenko, whom the U.S. famously labeled Europe’s last dictator, one Russian billionaire said on condition of anonymity. What’s happening is bad for business and bad for Russia, he said.

“The economic and business elite is just in horror,” said Igor Bunin, who heads the Center for Political Technology in Moscow. Nobody will speak out because of the implicit threat of retribution, Bunin said by phone yesterday. “Any sign of rebellion and they’ll be brought to their knees.”

It is difficult to see capital flight easing after the recent events and with a high likelyhood of a weaker economy and reduced demand investments are dropping. Maybe Russia is already entering one of those vicious recession cycles, but it is still early to tell.

[Firn]

Russia's surprise interest rate rise 'to curb inflation'.

BBC economics correspondent Andrew Walker

There's a key phrase used by the Russian Central Bank: "the aggravation of geopolitical tensions".

The shooting down of the Malaysian airliner over eastern Ukraine is now having an economic impact, indirectly, on Russia.

I will comment later on it, time has run out.

[Firn]

On Key rates by the Central Bank of Russia.

Of course the 'geopolitical factors' took it's toll, but in the long run this part confirms earlier statements and independent research:

Low economic growth rates are largely caused by structural factors. Utilisation of production factors — labor force and commercially viable production capacities — is high. Labour productivity growth is sluggish. Due to the demographic trends labour force shortage will continue to affect economic growth in the long term. Along with structural factors, external political uncertainty has a negative impact on economic activity. Investment demand remains weak amid low business confidence, limited access to long-term financing in both international and domestic markets, and declining profits in the real sector. Besides, consumer activity is cooling. Economic slack in most countries that are Russia’s trading partners does not contribute to acceleration in economic growth. At the same time, persistently high oil prices support domestic economy.

It seems harsh, but yes, Russia is in budget terms a bit like those oil states in the Gulf. Without high prices for ressources, especially oil and gas it's economic model doesn't work.

----------

The Central Bank of the Russian Federation (Bank of Russia)

Press Service

12 Neglinnaya Street, Moscow, 107016 Russia; tel: +7 495 771-44-17, +7 495 771-46-69; fax: +7 495 924-92-16;
www.cbr.ru

[Firn]

The German FAZ, Bloomberg (which also has a short historical overview with links) and the Sole 24 ore offer views from different countries. The strategy seems to be clear, with harsher ones possible, but for now the execution and the moral impact will matter.

After the last months it is still true that the balance sheet of Russia looks fairly strong but it's economic prospects increasingly grim. Russia is already paying a considerable price for Putin's war and now we have for the first time sanctions which show intent to harm the economy.

Treasury Secretary Jacob J. Lew, speaking to reporters today in Riverdale, Iowa, said U.S. sanctions are designed to maximize the economic pain on Russia while minimizing the effects elsewhere.

“If we are doing the sanctions effectively and smartly, we will put an enormous amount of pressure on Russia, and we shouldn’t see terribly negative economic impacts here in the United States,” Lew said. “Russia is barely growing now. With these increased sanctions, it’s going to grind Russia into either a flat or a negative economy.”

Personally I think that Russia is already in a recession but we will only find out once the adjusted figures come out.

The sanctions felt the earliest will likely be those bans on the bond market, unless the Russian Central Bank or the Kremlin react quickly and strongly.

European Union and U.S. sanctions jeopardize funding for Russian companies, which have tapped international capital markets for more than $600 billion in debt and equity since the country emerged from its 1998 default.

Russian businesses have about $165 billion in U.S. and European bonds and more than $100 billion in offshore syndicated loans currently outstanding, according to data compiled by Bloomberg. Whether banks based in China, which remains friendly with President Vladimir Putin’s regime, can replace that lending remains to be seen.

The sanctions against Russia “will likely force a further contraction in domestic credit growth and hence the economy,” said Alexander Moseley, senior portfolio manager in New York with Schroders Plc, which oversees $100 billion in fixed-income assets. “Asian debt and equity markets are probably not able to substitute entirely for curbed access to the dollar and euro markets.”

Orysia Lutsevych, research fellow at Chatham House in short Bloomberg video. She makes the point I raised earlier, some sanctions will work in the long term like those technology bans in the oil sector.