Russia sees signs of economic stabilization

Russia sees signs of economic stabilization
Updated 19 March 2015

Russia sees signs of economic stabilization

Russia sees signs of economic stabilization

MOSCOW: The worst is over for Russia's economy after a tailspin in oil prices and sanctions over Ukraine choked off access to credit and sparked the biggest currency crisis since 1998, according to Finance Minister Anton Siluanov.
"The negative peak is behind us and instead we are seeing certain signs of stabilization," Siluanov said in Moscow Thursday at a conference organized by the Russian Union of Industrialists and Entrepreneurs, the nation's big-business lobby. "The situation in the financial sector is also stabilizing. We see rising returns on debt markets, and the financial market is showing momentum toward growth."
The world's biggest energy exporter is shaking off the effects of the lowest oil prices since 2009 and economic penalties levied over the crisis in Ukraine by the United States and Europe. The ruble has turned a corner after last year's 46 percent slump, notching the strongest performance among emerging markets in the past month.
As inflation started to stabilize, the central bank has embarked on an easing cycle and focused more on jumpstarting the economy. The Bank of Russia last week lowered its main interest rate for the second time this year and signaled more policy relaxation ahead if consumer-price growth continues to ease. Russia may be able to keep inflation at 11 percent to 12 percent this year, according to Siluanov.
Greater freedom for business will be Russia's "best answer to all external challenges and limitations," President Vladimir Putin said at the same conference.
"That's why we'll definitely continue to create conditions for all those who are prepared to invest in the domestic economy and industry, development of technologies and creation of modern jobs," he said.
Lingering tensions over Russia's involvement in Ukraine are threatening the exodus of foreign investors from a country bleeding capital. General Motors announced on Wednesday that it planned to idle a plant in St. Petersburg and halt sales of its Opel brand and most Chevrolet models in Russia.
Auto sales in Russia fell 10 percent last year and declines have accelerated in 2015, dropping 38 percent in February. Capital outflows more than doubled in 2014 to $151.5 billion, forcing authorities to respond with spending cutbacks and an emergency increase in the benchmark rate in December.
Russia has built up an anti-crisis fund of almost 234 billion rubles ($3.9 billion) in this year's budget, which will be used to support systemically-important companies, Putin said, adding that borrowing costs remain excessive.
"The key rate is still rather high," he said. "Further fundamental conditions haven't yet been created for us to feel confident, and targeted help is important."
Russia is so far not seeing a trend of carmakers seeking to exit the country, according to Industry Minister Denis Manturov. Putin's spokesman, Dmitry Peskov, said Russia regretted GM's decision and predicted that other manufacturers will fill any gap created by a departure of one company.
While the financial turmoil wanes and the economy bottoms out, output and consumer demand continue to plunge. Industrial production shrank 1.6 percent from a year earlier in February, the most in two years, after a 0.9 percent increase a month earlier. Disposable incomes will probably shrink more than 6 percent this year, with retail sales set to slide 8 percent, according to the Economy Ministry.
The ruble's collapse and Russia's ban on food imports in retaliation for sanctions over the conflict in Ukraine helped stoke price growth in February to 16.7 percent from a year earlier, the fastest pace since 2002. Inflation has more than doubled from the start of last year.
Gross domestic product contracted 1.5 percent in January from a year earlier, according to a preliminary estimate by the Economy Ministry. GDP may shrink as much as 4 percent this year, the central bank said Friday.
Russia's current account in 2015 may post a surplus of about 6 percent of economic output and remain strong in the future, allowing the country to meet this year's debt payments and overcome the impact of capital outflow, Siluanov said.
"In general, we see the process of adaptation to new economic conditions," he said. "We are talking about an economic adjustment and adaptation of the financial markets."