After letting go of the whole government, Russian President Vladimir Putin was hoping that this will help him to revive Russian economy and boost his popularity rating across the country. However, it seems like the coronavirus ruined the plan. The global non-stopping spread of COVID 19 didn’t have mercy on any of the major economies around the globe.
Namely, oil prices plummeted last week like never in the last decade, and so did Russian ruble. Russia’s major trading and political partners – China and the European Union – have been experiencing serious hardships or even recession. According to the Finance Minister, Anton Siluanov, the country is bleeding RUR 1 bln ($15.3 mio) a day because of the losses coming from the lack of trade with China.
As Dmitry Dolgin, chief economist at ING Bank in Moscow, commented, “After the reshuffle, the key question was how much the extra fiscal measures would propel growth. Now the question is whether the fiscal stimulus will be enough to offset the negative effect of coronavirus.”
Thanks to reserve-building that lasted for approximately five years, Russia will still be able to cover the planned spending even though oil prices are getting lower each week. However, there is still no insurance against a possible downbreak in Russian economy as there is no way it will be able to separate itself from the rest of the world which, notably, has shown the weakest performance since the 2008 financial crisis.
Regardless of the positivity of the Finance Minister, the Economy Minister is convinced that even though Russia has reserves that would keep the economy floating, spending these would cut back the economy’s growth forecast for the year if not more.
While Putin is struggling to boost living standards and gain people’s support, the Kremlin is trying to find the ways that would allow them to keep Putin’s rule beyond the end of his term in 2024. After appointing a new cabinet in January this year, Vladimir Putin laid out a new plan that implied a 1.3% increase in GDP this year. But now it is becoming less and less likely.
The Russian Central Bank is struggling to boost the economy with more cuts in interest rates for fear of weakening the ruble. Meanwhile, the Organization of Economic Cooperation and Development decreased its forecast this year to 1.2% from 1.6%. Economists at Alfa-Bank in Moscow limited their expectations to only 1.4% per annum from 1.8%.
According to the data published earlier this week, Russia’s oil exports to Asia were almost unscathed in February. What is more, even Russian diamond giant ALROSA, confirmed that the virus hurt sales last month.
Drawing a bottom line here, we might admit that a decrease in prices of oil could enhance an impact of coronavirus on Russia’s economy, diminishing confidence and creating complications for further economic growth of the country. However, the effects of a supply chain disbalance might build up slower, depending on the scope of the shock.
By Natalia Revishvili, ForexNewsNow.com