Russias recession deepens as economy contracts 4.6%[footnoteRef:1] [1: http://www.ft.com/intl/cms/s/3/8e640b2e-3f71-11e5-b98b-87c7270955cf.html?siteedition=intl]

Steve JohnsonSlow oil prices, sanctions imposed by west and fiscal austerity take their tollAFPRussias recession deepened in the second quarter of 2015, marking a sharp contrast with robust growth in much of eastern Europe, figures released prematurely by Rosstat, Moscows statistics service, on Monday showed.Russias gross domestic product declined 4.6 per cent year-on-year in June, a fraction worse than the consensus forecast of 4.5 per cent and a sharp acceleration from the 2.2 per cent year-on-year fall recorded in the first quarter.

The countrys economy is now contracting at the fastest pace since the depths of the 2008-09 global financial crisis as it continues to be buffeted by low oil prices, sanctions imposed by the west in the wake of the Ukraine crisis and fiscal austerity driven by a sharp decline in tax revenues.Seasonally adjusted quarter-on-quarter data are not due to be released until later this month, but Capital Economics estimated that the Russian economy contracted 2.5 per cent quarter-on-quarter in Q2, almost double the 1.3 per cent rate seen in the previous three months, and again the highest figure since 2009.The data mean Russia is now the fastest contracting decent-size economy in the world in year-on-year terms, overtaking Iraq and Venezuela, which posted declines of 2.4 per cent and 2.3 per cent respectively, at least according to their official data.Brazils economy contracted 1.6 per cent year-on-year in March, although this figure in likely to have worsened since then, while Japan contracted 0.9 per cent.The Russian data also stand in sharp contrast to the robust growth figures currently enjoyed by many of its former vassal states in eastern Europe. The Czech Republic is growing at 4 per cent year-on-year, Poland 3.6 per cent and Hungary 3.5 per cent, although all three may report a slight slowing when they release fresh numbers on Friday.

Michal Dybula, an analyst at BNP Paribas, said the Russian data were driven by a sharp contraction in consumer demand and investment, as a result of high interest rates, currently 11 per cent, and Moscows restricted access to the international capital markets.Russias economy remains plagued by low oil prices, structural inefficiencies and geopolitical tensions, he said.Extrapolating from monthly data, Liza Ermolenko, emerging market economist at Capital Economics, estimated that, in the second quarter, household spending contracted at about the 8.9 per cent pace witnessed in the first quarter.However, she believed the deterioration in the data was likely to be due to a slump in industrial production, which only fell 0.4 per cent in the year to March, a rate of decline that may have since risen to as high as 5 per cent.Despite this, Ms Ermolenko believed the recession would start to bottom out towards the end of 2015, with Capital Economics previous forecast for GDP to contract 5 per cent over the year as a whole probably too pessimistic.Any recovery was, however, likely to be a long, slow grind, she feared.

Vladimir Osakovskiy, Russia economist at Bank of America Merrill Lynch, also believed that Q2 was likely to be a trough, with domestic demand likely to pick up in the second half of 2015, helped by slowing inflation, weakening deleveraging and robust corporate profits.BOFA forecasts a year-on-year growth rate of minus 2.5 per cent to minus 3 per cent in the second half of 2015, with recovery only likely from the first quarter of 2016.With corporate profits running at an all-time high, Mr Osakovskiy argued that Russia already had enough resources to drive a pick-up in investment from the start of next year.However, a more bearish Mr Dybula said he expected the trends to persist over the coming months and argued it was too early to state conclusively that growth has bottomed.

The worst is yet to come[footnoteRef:2] [2: http://www.economist.com/news/finance-and-economics/21650188-dont-mistake-stronger-rouble-russian-economic-recovery-worst-yet]

Dont mistake a stronger rouble for a Russian economic recoveryMay 2nd 2015|From the print edition

RUSSIAS currency, the rouble, had a terrible 2014. As oil prices collapsed and Western sanctions bit, export revenues slumped. Nervous investors pulled $150 billion from the country. As a result, the rouble lost about half its value against the dollar (see chart). But over the past few months, it has climbed out of its trough. Russian bonds and stocks have done well, too. The Central Bank of Russia (CBR) has been cutting interest ratesan unthinkable prospect just a few months ago. On April 30th it lowered its main rate from 14% to 12.5%. All this, some say, is proof that investors are too pessimistic about the Russian economy. They are wrong.Oil prices have risen slightly since the start of the year. That is helpful for an economy where the stuff provides half of all exports. The cheaper rouble has buoyed exports, too. A new deal to end the Russian-backed insurgency in Ukraine, signed in February, has also made investors less jittery.Nonetheless, the roubles strength is a puzzle, since in many ways the Russian economy looks worse than it did in December. Inflation, at 16.9%, is 5.6 percentage points higher, a jump that would normally spur depreciation. Real wages are tumbling fast. The foreign-exchange reserves of the CBR have fallen by about $30 billion so far this year, and by $130 billion since this time last year. The IMF thinks that the economy will shrink by 4% in 2015and it is a relative optimist.Economic fundamentals cannot explain the roubles strength, but the CBRs behaviour may do. Last year, as the rouble collapsed, it launched a $50 billion scheme to lend dollars to companies at a concessionary rate. That was especially useful in December, when Russian firms faced a mound of debt repayments. This year Russian firms, with fewer foreign bills to pay, have used the cheap dollars to invest in much higher-yielding Russian assets, says Timothy Ash of Standard Bank. The effect has been to bolster the rouble and other Russian assets. On April 20th, however, the CBR put a stop to this carry trade by making the loans more expensive, halting the roubles appreciation.What next for the volatile currency? Things do not look good. Russian firms still have around $100 billion of external debt maturing this year. Since the rouble remains weak, and their cash reserves have dwindled, repayment may be difficult. Wonks at Capital Economics, a consultancy, think that the Russian state will have to help out again. However, Anders Aslund of the Peterson Institute, a think-tank, estimates that the CBR only has about $150 billion of liquid foreign-exchange reserves at its disposal. Add in a big government deficit and high capital outflows, and within a few months reserves will be much lower. The Kremlin may then be tempted to try to pay off foreign debt by printing roubles to buy foreign currency. If that happens, expect much more upheaval.From the print edition: Finance and economics

Fractures Form Inside Russias Central Bank as Recession Deepens[footnoteRef:3] [3: http://www.bloomberg.com/news/articles/2015-08-13/fractures-form-inside-russia-s-central-bank-as-recession-deepens]

Evgenia PismennayaIlya ArkhipovAugust 13, 2015 7:31 AM IST

Bank of Russia First Deputy Chairman Dmitriy Tulin. Photographer: Igor Russak/RIA Novosti

In his first stint as a top Russian central bank official in the early 1990s, Dmitry Tulin saw how flooding cheap credit to dying industrial giants delivered hyperinflation instead of growth.Now back as the banks monetary chief, Tulin, 59, has argued internally for easier credit and more targeted lending to industry to revive an economy driven into recession by plunging oil prices and U.S. and European sanctions, say officials who have attended meetings with him. They discussed internal bank deliberations on condition of anonymity.While Tulin isnt pushing for a repeat of the failed Soviet-style policies of the early 1990s, his challenge to the orthodox approach of his boss at the central bank, Governor Elvira Nabiullina, underscores the tension facing Russias economic policy makers as they try to steady an economy battered largely by forces beyond their control.The external environment is very difficult: geopolitical tensions, sanctions, rising capital outflows, a sharp drop in economic activity, a strengthening of restrictive and regulatory moves by the authorities, said Alexei Kudrin, a former finance minister who now runs a think tank. Nabiullina, an advocate of traditional, market-based policies, is trying as best she can to maintain her balance in this very unstable situation.While Russian officials say publicly the worst of the economic turmoil has passed, they say in private that the situation is fragile at best and the central banks $358 billion in reserves could be drained further if crude prices continue to drop.Economic SlumpRussias economycontracted4.6 percent in the second quarter, its weakest performance since 2009, and the Economy Ministry has said it might cut full-year forecasts. A renewed slide in oil prices has dragged the ruble to a six-month low against the dollar, further limiting the central banks room for maneuver and raising the stakes for Tulins policy debate.If our financial system doesnt turn its face toward material production, then our country wont have a futureHis arguments have already contributed to shifts, helping drive the bank to cut interest rates quickly in recent months and begin to rebuild its foreign-exchange reserves, officials said.Tulin advocates more assertive steps to manage the exchange rate, which has lost almost half its value against the dollar since the Ukraine crisis began last year. He has gone as far as questioning bank opposition to restricting international capital flows. He has argued that lifting capital controls in 2006 was a mistake and re-imposing some limits could be justified to steady the ruble, according to officials familiar with his thinking.Capital ControlsSo far, Nabiullinas view that capital controls would do more harm than good remains policy. The officials said theres no sign yet of open conflict between Nabiullina and Tulin. As monetary chief, he has emerged as her most influential deputy, officials said.Still, his positions also reflect views widely held in the Kremlin and the government, where many back the kind of direct intervention in the economy that Russia hasnt seen since the early 1990s, officials say.

A Russian national flag flies above Russia's central bank in Moscow. Photographer: Andrey Rudakov/BloombergThe central bank already has pumped trillions of rubles into the economy as the slump deepened. In the first half, lending to banks averaged 5.4 trillion rubles a day -- up 20 percent from the year before, according to official data.The central banks press service declined to comment on any differences between Nabiullina and Tulin.Team PlayerFacing political pressure after the rubles plunge in December when the currency dropped as much as 20 percent in a single day, Nabiullina brought Tulin on board in January. He was chosen to help placate critics who had accused the banks leadership of being out of touch, senior officials said. At the time, Nabiullina, a 51-year-old Putin appointee, praised him as very responsible.In a March interview with Interfax, Tulin described himself as a team player.Hes been a fixture on Moscows banking scene since the early 1990s. He began his career at Gosbank, the Soviet central bank, and became a deputy chairman at its Russian successor after the Soviet collapse.No advocate of easy money -- he served as Russias representative to the International Monetary Fund in the 1990s - - he has likened the banks role to that of one of a team making a suit, colleagues said. Even if the individual tailor sewed only the buttons, he still shares responsibility if the suit fits badly.Targeted SupportHe has argued in internal deliberations for targeting central-bank support to specific sectors, including grain farming and gold mining, according to officials.If our financial system doesnt turn its face toward material production, then our country wont have a future, Tulin said in an April 23 interview in tabloid Komsomolskaya Pravda.But his calls for expanding a 100 billion-ruble program for targeted cheap loans to manufacturers and farmers have run into opposition from Nabiullina. She has said the program doesnt work and shouldnt grow, while Tulin has written letters to senior government ministers sugggesting the bank could offer more money, according to officials.Its an illusion to think that if we give everyone cheap loans that will get the economy growing, said Sergey Dubinin, who came in as chairman of the central bank about a year after Tulin left as deputy in 1994 and is now a board member at state bank VTB. We went through that in 1992-1993, when we gave everyone loans and wound up with 1000% inflation.

Russian central bank raises interest rate to 17% to prevent roubles collapse[footnoteRef:4] [4: http://www.theguardian.com/world/2014/dec/15/russia-interest-rate-rise-17pc-rouble-collapse-oil-price]

Banks decision, sparked by fears plunging global oil price would devastate countrys economy, follows day of market stressAn information board showing exchange rates in Moscow. Russias central bank hiked interest rates to 17% as the rouble plunged. Photograph: TASS / Barcroft MediaLarry Elliott, economics editorMonday 15 December 201423.37GMTLast modified on Tuesday 16 December 201401.10GMTRussias central bank has taken drastic action to halt the roubles freefall on the foreign exchanges by raising interest rates by 6.5 percentage points to 17%.After a day of turmoil dominated by fears that acrashing global oil pricewould devastate Russias energy-dominated economy, an after-hours meeting of the central bank in Moscow decided emergency action was needed to prevent the roubles collapse.The bank said the increase in borrowing costs which will deepen Russias recession if sustained for a prolonged period was needed to end currency depreciation and to combat inflation.Higher interest rates tend to make currencies more attractive to foreign investors and the rouble rose against the dollar in the wake of the surprise announcement.Earlier, a10% fall in the value of the rouble against the dollarhad badly rattled global markets, with the FTSE 100 index in London closing at its lowest level of 2014.Investors dumped shares as they weighed up the risk that a deepening economic crisis would destabilise Russia and make it more difficult for the west to deal with its president,Vladimir Putin, adding to geopolitical tensions in eastern Europe and the Middle East.The huge jump in interest rates was seen by analysts as an attempt by the central bank to show that it was determined to protect the rouble. A smallerone-point rise to 10.5%last week had failed to impress financial markets at a time when the price of oil was plunging to a five and a half year low.Earlier,Russiabought roubles for dollars on the foreign exchanges but failed to prevent the biggest one-day decline in the currency since Russias debt default in 1998.The fall meant it took 63 roubles to buy a dollar, a decline of 45% since the start of a year that has seen the price of oil drop from $115 a barrel (73) to barely $60 a barrel.In London, the FTSE 100 index of leading shares fell for the sixth day in a row, with energy companies particularly hard hit by thedrop in Brent crude to about $61a barrel.TheFTSEhas lost 9% since the start of last week and closed at 6182 points. They days 118-point fall means it is more than 500 points lower than its level at the start of the year.Although the near-halving of the cost of crude oil since the summer should eventually boost global growth byincreasing consumer spending powerand reducing business costs, investors are concerned that lower oil prices reflect softer demand from a weakening global economy.Major European bourses lost 2% of their value as the rouble fell against the dollar despite the efforts of the Russian central bank.Neil Shearing, chief emerging market economist at CapitalEconomics, said there was now speculation that Russia would resort to capital controls to defend the rouble.Oiland gas account for 70% of Russias exports and Moscow needs an oil price in the region of $100 a barrel to balance its budget. Even before the dramatic announcement of the interest rate rise, the central bank said the economy would contract by 4.5% in 2015 if the oil price remained at its current level for the next 12 months.Oil prices came under renewed downward pressure on Monday after Opec stressed it had no immediate intention of curbing production. Some analysts believe Saudi Arabia and the US are deliberately pushing oil prices lower in order to put pressure on Putin. Washington is contemplating tougher sanctions against Russia for its support to separatists in eastern Ukraine.Neil Barnett, of the Centre for Policy Studies, said: The bad news for Russia is that the outlook for oil prices appears weaker and weaker. This week, the International Energy Agency cut its demand growth forecast. In combination with still-growing US production and Saudi determination to keep prices low, it means that prices next year are likely to fall yet further.Laith Khalaf, senior analyst atHargreaves Lansdown, said: The pace of the fall has been breathtaking, with oil-related stocks bearing the worst of the pain. We are now closing in on a technical correction [10% fall] after just six abysmal trading sessions. To give some perspective, we already witnessed a 10% fall in the UK market in September and October of this year, but this took place over six weeks, not six days.

Russian Inflation Accelerates[footnoteRef:5] [5: http://www.wsj.com/articles/russian-inflation-accelerates-1425574517]

Central bank faces policy dilemma as inflation soars while economy shrinksENLARGERussian shoppers at a mall in central Moscow. Russias inflation rate has accelerated to levels last seen in 2002, leaving the central bank with a conundrum as the economy slides into a recession.PHOTO:AGENCE FRANCE-PRESSE/GETTY IMAGESByANDREY OSTROUKHMarch 5, 2015 11:55 a.m. ETMOSCOWRussias inflation rate has accelerated to levels last seen in 2002, leaving the central bank with a policy conundrum as the economy slides into a recession.Hit by arapid drop in the price of oil, Russias chief export, the country faces an economic and financial crisis similar to the one endured in 2009. But unlike six years ago, the country has been cut off from global capital markets because of Western sanctions imposed after Moscowsannexation of Ukraines Crimean peninsula.Russias Federal Statistics Service on Thursday showed that annual consumer price inflation accelerated to 16.7% in February from 15% in January. Food prices were the main driver of the headline inflation figure, rising 23.3% from a year earlier.Inflation in Russia has been fueled bya rapid weakening of the ruble, which has made imports more expensive. Moscows ban on food imports from countries that haveimposed sanctions on Russiahas also spurred price growth.As inflation is running above the central banks key interest rate of 15%, the regulator is unlikely to cut rates at its next policy meeting on March 13. However, data showed this week that weekly consumer price inflation slowed in early March to levels last seen in October, which was largely before the rubles rapid depreciation. We think inflation is close to peaking, but the big picture is that it is likely to remain high over the course of this year. As a result, we think that interest rate cuts will be much more modest than most expect, Capital Economic research firm said in a note.Dmitry Tulin,who joined the central banks board as first deputy chairman in January, taking over the role of Ksenia Yudaeva as monetary policy chief, said full-year inflation is now seen around 12%. Initially, the central bank had planned to keep inflation close to its target of around 4%. Mr. Tulin said it would be possible to reach such level by the end of 2017.The ruble has largely stabilizedafter a nearly 50% devaluationlast year, which could help to slow inflation. In an interview with Interfax news agency, which was published Thursday, Mr. Tulin said that the ruble has eventually found a state of equilibrium without any central bank intervention.On Thursday, the dollar eased nearly 2% to 60.73 rubles and the euro fell 2.5%, sliding below a level of 67 rubles for the first time this year.Even so, the central bank, whichfloated the ruble late last year, will continue working with export companies and urge them to convert their foreign currency revenue into rubles, Mr. Tulin said. Such pressure on exporters has already helped to increase foreign currency supplies, needed to repay foreign debt at a time of limited access to the global capital market.Mr. Tulin said the central banks economic outlook was based on an average crude oil price of $50 a barrel this year. This price level also underpins the finance ministrys latest budget plan.However, Finance MinisterAnton Siluanovwarned Thursday that the risk of a further drop in oil prices remains.It is worth noting the remaining risks on the oil market, where supply keeps on exceeding demand and oil inventories are growing fast, Mr. Siluanov said, presenting a new budget plan to the government.