Pushing Putin Recession Lurks for Russia

Vladimir Putin's tough talk will no longer be enough to save the country’s sinking economy. He needs to take action.
Not a care in the world.

Vladimir Putin knows that he has to do something if the Russian economy – caught like a rabbit in the headlights – is not to drift completely into recession. Russia’s president is planning a big speech on the state of the nation for the beginning of December – much earlier than previously planned. It is intended to free up the economy at a single stroke.

The economy is certainly waiting for a clear signal from Mr. Putin. "The external trade situation has become extremely difficult, we urgently need a liberalization domestically, a more entrepreneur-friendly environment," said Sergey Vassiliev, the deputy head of the state-run development bank VEB.

The same goes for the chairman of the Russian business association Delovaya Rossiya, Alexey Repik: "The most important thing is that the president intervenes to ensure clear ground rules in the economy.”

In other words, it is essential that Mr. Putin shows resolve in the fight against corruption, puts an end to the never-ending controls by authorities and stops the mega infrastructure projects that are costing billions and are particularly susceptible to corruption.  Mr. Putin’s closest friends, the new oligarchs of Russia, are the only beneficiaries of these projects in the final analysis – like the construction giant Gennady Timchenko and the Rotenberg brothers.

For ordinary Russian company owners, on the other hand, times are hard, both at home and abroad. Recently, they have been complaining repeatedly about their precarious situation – and not just since the oil and telecoms oligarch Vladimir Yevtushenkov was placed under house arrest. He has just had his oil concern, Bashneft, taken away from him in a controversial trial. The case of Mr. Yevtushenkov, who must also fear losing MTS, Eastern Europe’s biggest mobile phone company, has contributed massively to feelings of insecurity.

Russian banks are complaining openly that they are, to all intents and purposes, cut off from the West’s financial system.

The West’s sanctions are equally damaging for business. Even Mr. Putin has recently been forced to concede they are having an effect on his country’s economy – like in his fiery speech on foreign policy in Sochi, or in his German television interview over the weekend. His solution? More billions to stimulate domestic production.

But experts are skeptical. German Gref, the chief executive of Sberbank, Eastern Europe’s biggest financial institution recently said that Russia has already wasted billions on such attempts without success. Russian banks are complaining openly that they are, to all intents and purposes, cut off from the West’s financial system.

To top that all off, the country’s currency, the ruble, has crashed spectacularly. One U.S. dollar now costs 47 rubles. At the beginning of the year, it was less than 33.

The ruble has been forced down by the sharp fall in the price of oil and the rampant flight of capital. For a balanced budget, the lion’s share of which is based on revenues from raw materials, Russia needs an oil price of $96, and since June that price has sunk to just over $80.

So Mr. Putin needs growth. And while he has been confident about being able to make that happen, others are skeptical. Even Moscow's central bank predicts only zero growth for 2015.

German DAX stock-index companies are even more pessimistic. According to information obtained by Handelsblatt from company sources, their internal calculations are based on minus 1.5 percent.

 

Mathias Brüggmann is head of the Handelsblatt foreign desk. To contact the author: [email protected].