Russia Is Teetering on the Edge of a Recession
Former Russian finance minister Alexei Kudrin has a warning for Kremlin officials: Russia is dangerously close to a recession. Kudrin's analysis comes just after the European Union and United States announced increased sanctions against Russia, including a hit to Russia's oil sector and financing options. Kudrin believes that because Russia is not investing heavily enough in their own economy, they are decreasing their own chances of successfully surviving increased sanctions.
"In a difficult moment like this, it would be useful to increase government investments. This is exactly what the market needs now. To cut government investment now and increase pay is inappropriate," Kurdin said at a conference, as reported by Reuters. "The government's support is limited, bound by continued large social spending."
This comes shortly after Rosneft, Russia's state controlled energy company and a global oil giant, requested a loan of over $40 billion, which government officials are currently considering. "I think that to provide Rosneft with a government loan or investing in its bonds, shows explicitly that Rosneft cannot on its own refinance its debt. This lowers the quality, the status of Rosneft as a borrower – it significantly affects its capitalization, its perspectives," explained Kurdin, "It is possible that Rosneft should divide its share in some projects with others and as such lower the burden on the government. Support is necessary, but it should be well thought-through."
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Kudrin and Putin remain close, though they certainly view the Russian economy quite differently. Previously, Kudrin predicted the Russian economy would shrink by three to four percent in 2015, whereas other officials believe it would grow one percent. "The sanctions that have been imposed are going to have an impact over one, or two years, because they have cut investment opportunities," explained Kudrin.
As for that one percent in growth, Russian Deputy Prime Minister Arkady Dvorkovich spoke at the same conference, and told Reuters he believes growth could come from far Eastern Russian and their reserve funds. "Turning to the East brings good prospects, especially for Russia's far east. When it comes to sanctions we consider them meaningless, counterproductive ... measures that do not solve political problems."
This article was originally published at http://www.thewire.com/business/2014/09/russia-is-teetering-on-the-edge-of-a-recession/380274/
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