Russia Retools After Crash

 

Post-Oil Economy Takes Shape

 

By Olga Tanas

 

With none of the fanfare that greeted Saudi Arabia’s plan for the post-oil era, the Russian economy is quietly getting its biggest makeover under President Vladimir Putin. A trail left by crude’s collapse has turned up some unlikely survivors and even industries that found a way to prosper as the broader economy burned.

“New drivers for growth have already appeared in the economy — agriculture, chemicals, the food industry, domestic tourism,” Deputy Finance Minister Maxim Oreshkin said in an interview on Monday. “They haven’t yet made up for a drop in non-tradable sectors, which was a one-off and structural.”

Russia’s famously boom-and-bust economy is already turning heads. A contraction in the first quarter was less than all but one forecast in a Bloomberg survey, meaning the nation’s longest recession in two decades may end as soon as next quarter. The 1.2 percent drop in gross domestic product from a year earlier was the smallest since the decline began at the start of 2015.

Russian economy
Growth of some Russian industries in 2015

While some of the shock therapy was self-inflicted, including a decision in late 2014 to shift to a free-floating exchange rate, much of it came from a bruising standoff with the West over Ukraine and turmoil in the energy markets. Tables were turned on consumer industries that took off as a $2.1 trillion energy windfall powered domestic demand for more than

Free Float

That came to an end with the decision to loosen the reins on the currency, with the central bank pulling the trigger ahead of schedule to protect its reserves as oil prices plunged. The ruble has since racked up losses against the dollar that reached 44 percent in 2014 and 20 percent in 2015, before recouping some of its decline this year with a gain of more than 11 percent.

“There are small signs of shifts in the structure of the economy, against the background of more than a twofold weakening of the ruble that gave competitive advantages,” said Nikolay Kondrashov, a senior analyst at the Development Center of the Higher School of Economics in Moscow. “But for changing the structure of the economy, price advantages alone aren’t enough.”

Economic Linchpin

For all the signs of improvement elsewhere, oil and gas remain the lifeblood of the economy. Any gains will prove short-lived without a broader overhaul that unlocks investment.

“Some industries have benefited from the devaluation, but it’s a one-time win,” said Evsey Gurvich, head of the Economic Expert Group in Moscow. “There’s a certain shift, but a process of overhaul hasn’t yet started. What’s needed is investment, reforms, investor trust.”

Proceeds from energy account for about a third of budget revenue. That compares with 23 percent in 1996-1999 and an average of 50 percent in 2011-2014, according to Morgan Stanley. As much as a quarter of Russia’s GDP was linked to the energy industry last year, more than five times the share for agriculture.

Please follow the link to FINISH READING the original article published by Bloomberg Asia.

 

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3 thoughts on “Russia Retools After Crash

    1. Excessive western propaganda is starting to achieve quite opposite of what they have intended – not only in Russia but at their home as well. People are starting to open their eyes. Europeans are a bit tired of “Russians are coming” and waiting for it for so many decades. Russians are not coming to Europe (unless NATO force them to) – they have better things to do than to fiddle with confused slave of USA/UK called EU.

      Liked by 1 person

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