Russian Woes Worsen as Recession Looms With Banks in ‘Panic’
By Olga Tanas and Lyubov Pronina Dec 2, 2014 10:59 AM ET
Russia’s economic crisis deepened as the government acknowledged it’s heading for recession and a former central banker spoke of “some panic” in the financial system as oil prices plunged.
Speaking a day after President Vladimir Putin said Russia is scrapping a proposed $45 billion pipeline to Europe, the government predicted the economy will contract next year and canceled a bond auction. It was also forced to pledge 39.95 billion rubles ($740 million) to support OAO Gazprombank, at least the third lender to secure a capital injection since U.S. and European Union sanctions curbed their ability to borrow.
The economy is succumbing to penalties imposed over the conflict in Ukraine as the plummeting ruble stokes inflation and a 30 percent drop in oil prices erodes export revenue. Russia may enter its first recession since 2009 in the first quarter, according to Deputy Economy Minister Alexei Vedev.
“The elements of instability” afflicting Russia’s economy range from structural to geopolitical, Vedev told reporters in Moscow today. “One of the key factors is the lower price of oil.”
Urals, Russia’s chief export oil blend, will probably average $99 a barrel in 2014, a downgrade from an earlier forecast for $104, he said. Its price is forecast to drop to an average of $80 next year, according to Vedev.
Photographer: Ivan Sekretarev/AP Photo
A currency exchange booth in downtown Moscow on Dec. 2, 2014. The Russian government... Read More
Looming Recession?
Gross domestic product may shrink 0.8 percent next year, compared with an earlier estimate of 1.2 percent growth, Vedev said. The forecasts are still preliminary and don’t reflect the government’s unified position, Finance Minister Anton Siluanov told reporters in Moscow.
The revised outlook shows the toll on economic output of Russia’s worst confrontation with the U.S. and its allies since the Cold War. GDP will probably shrink or show zero growth this quarter and decline in the next three months on an annual basis, Vedev said.
A recession is usually defined as two consecutive quarters of contraction on a quarterly basis.
In the latest sign of the pressures facing the government, it agreed to channel aid to Gazprombank from the National Wellbeing Fund, one of Russia’s two sovereign wealth funds with $80 billion in assets. That follows decisions to help state-owned lenders VTB Group and Russian Agricultural Bank bolster their capital by allowing them to convert loans worth 239 billion rubles into preferred shares. Profits have plunged as banks increase provisions for bad loans amid a slowing economy and the decline in the ruble.
more:
http://www.bloomberg.com/news/2014-12-02/russia-sees-first-recession-since-2009-with-0-8-slump-next-year.html
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