Can Russia’s Economy Really Get Any Worse? Maybe

Record-low oil prices, international sanctions and an expensive interventionist foreign policy — can things get any worse for the Russian economy? The answer varies according to which Russian captain of industry you speak.

The World Bank sees Russia’s economy shrinking by a steep 3.8 percent this year. A sharp contraction in real wages of 8.5 percent in the first half of 2015 has led to a rise in an already-high poverty rate and a tumble in consumer demand.

However, the billionaire president of Russia’s Rusal, the world’s second largest producer of aluminum, thinks the worst is yet to come — although not for at least another three quarters.

“There is still a crisis and we can’t see the bottom yet and there are a lot of issues that need to be resolved… I don’t think in the next nine months we will see the bottom yet,” Oleg Deripaska told CNBC on Wednesday.

He pointed to plethora of issues that needed to be resolved before the economy would see any improvement, including the volatility in commodity markets, an overreliance on state enterprises and government intervention and the inefficiency of the Russian debt markets and overall financial system.

In addition, Deripaska said there were “a few conflicts which need to resolve” — potentially a reference to Russia’s bombing campaign in Syria and activity by pro-Russian militants in Ukraine that are believed to be backed by Moscow.

However, Alexei Yakovitsky, chief executive of VTB Capital — part of VTB, Russia’s second-largest bank by assets — told CNBC this week that Russia’s economy was at, or near to, its nadir.

“Obviously, Russia’s economy has been going through a fairly tough adjustment, largely driven by external shocks. I’d say we’re either at the bottom or pretty close to it. I think we’re starting to see the early signs of things turning the corner — the economy is adjusting fairly quickly,” he said.

Yakovitsky forecast a “marginally positive result” in terms of GDP next year, in common with the World Bank, which sees the Russian economy expanding in 2016 by 0.7 percent

“This will be driven by import substitution, by the impact of the weak ruble and just the latest statistics show a reversal of capital flight with capital coming back in, which is also an early positive sign,” he told CNBC.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam