Moscow nervous: Russia slips unexpectedly rapid in a recession

Russia unexpectedly slipped quickly into a serious recession. The Russian Minister of Economic Affairs presented on Monday poor numbers. The price of oil is too low; Moscow has little leeway to intercept this development. The planned privatization of Rosneft is nearly hopeless under the current market conditions.

Originally appeared at DWN, translated by Karin exclusively for SouthFront

The Russian economy has slipped 2015 into a recession. The gross domestic product (GDP) has shrunk by 3.8 to 3.9 percent, cites the news agency Tass on Monday Economy Minister Alexei Ulyukayev. 2014 it had still grown by 0.6 percent. The slump in oil prices and the Western sanctions, a response to Russia’s actions in Crimea, have had an impact on the once booming emerging economy. The International Monetary Fund expects this year once again a decline in economic performance, but with 0.6 percent it is likely to be much smaller.

The German economy is feeling the crisis in Russia as well. In the past two years, exports have almost halved to about 20 billion euros, estimates the German Chamber of Industry and Commerce. This trend was exacerbated by the EU sanctions; in light of the current Russian economy figures they have harmed Germany more than Russia. The Germans missing the revenues, the Russians on the other hand have at least saved these expenditures or compensated by domestic suppliers. This year, Germany expects a further decline, which should however be relatively mild with five percent. Generally it is believed that the EU would like to lift the sanctions again in the coming months because of sustained counter-productivity. Whether the US government will allow this, is still unclear.

The slipping oil price threatens Russia in a budgetary deficit equivalent to 36 billion Euros. This estimate announced Finance Minister Anton Siluanow on Saturday in a televised interview, in the event that the oil price remains at the current level and does not recover. According to him, the government in Moscow could then be forced to rely on their reserves. To compensate for the deficit, it would be possible to tap the sovereign wealth funds NWF.

The government based the 2016 budget on an oil price of 50 dollars per barrel. But at last it traded at 27 dollars. If it stays at this difference, the country would take more than three trillion rubles less than planned, stated the Minister.

In Russia, energy sales account for about half of government revenues. The dramatic fall in oil prices since mid-2014 therefore makes difficulties for the economy. Even the national currency, the ruble, has since massively lost external value against the dollar; the minus is more than 50 percent. Siluanow said, as the oil price is unlikely to fall again as sharply as it did, the ruble will also not give way again to the extent.

Other oil-producing countries also are coming under massive pressure. Venezuela called on Friday out an economic crisis. A corresponding decree gives the socialist president Nicolas Maduro now 60 days time to take measures to support the economy. The decree provides him with special powers. According to the Central Bank the economy of the OPEC nation shrank in the first nine months of 2015 by 4.5 percent. At the same time, prices accelerated to 141.5 percent. This is the highest inflation rate worldwide.

Because Rosnefts revenues dropped significantly due to the fall in oil prices, the Russian government wants to sell part of the oil company. “We need to make now a decision, from where to get the money,” Finance Minister Anton Siluanow said Saturday to the television station Rossiya-1, with a look at the budget minus. Therefore 19.5 percent of Rosneft should be sold. This should have been done years ago, Siluanow said.

The Russian government has been debating for years about reducing their Rosneft share of 69.5 percent. A decision taken in 2013 for the sale of 19.5 percent was later again revised. The finance minister said that falling oil prices presents the government with new challenges. “The oil price has fallen to a quarter of its previous value,” Siluanow said. “We need to construct the state budget with new realities and shrinking resources.”

Actually, observers cannot imagine how to determine a fair market value for Rosneft under current conditions. For most, the project therefore seems currently hopeless, if Moscow does not want to risk selling the shares significant under value.