- Oil price slump prolongs recession as weak ruble stokes prices
- Putin may use annual press conference to pledge stability
President Vladimir Putin is likely to use his annual news conference on Thursday to try to reassure Russians as slumping oil prices threaten his efforts to pull the economy out of recession.
Putin is facing one of the toughest challenges of his almost 16-year-rule as oil trades close to levels last seen during the global financial crisis, prolonging the downturn and stoking inflation while incomes fall by the most since he came to power.
“Putin will say that everything is under control and you just need to wait some time,” said Boris Makarkin, deputy director of the independent Center for Political Technologies in Moscow. “The problem is that Russia is facing long-term stagnation and there is a growing realization among people that the crisis is more serious than they thought and will last longer.”
Putin enters the marathon news conference after public approval touched a record high amid airstrikes in Syria against Islamic State and other militants, even as sanctions imposed over Russia’s intervention in Ukraine still weigh on the economy. Gross domestic product may contract as much as 4.4 percent this year and 1 percent next year if oil stays at $50 a barrel, while there are “significant risks” that crude prices will decline further, according to the central bank. It has calculated that GDP will fall as much as 3 percent in 2016 with oil at $35, just below the current level.
Crude prices at $30 would threaten the financial industry in Russia, the world’s largest energy exporter, according to a Bloomberg survey. The country relies on oil and natural gas for about half of the state’s budget revenue.
“In 2016, the number one risk is a serious crisis in the financial system,” because the banking sector is weak and under-capitalized, with a high proportion of non-performing loans, said Andrei Movchan, head of the economic program at the Carnegie Moscow Center. “A major bank could collapse and this could spark a domino effect that the government won’t be able to control,” he said.
Putin, 63, said at last year’s news conference that Russia’s difficulties may last two years “under the most negative external economic scenario.” The ruble traded at 61.5 to a dollar then after slumping more than 40 percent as oil prices tumbled. It’s weakened to about 70 per dollar now and oil prices are still sinking.
In a sign of the pain Russians are experiencing, wages and retail sales declined by the most since 1999 in October. Real wages were down 10.9 percent from a year earlier, with the loss of consumers’ purchasing power from persistent inflation and a weaker ruble deepening the prospect that the recession will extend into 2016. A glutted oil market leaves little hope for a recovery in crude prices soon to reignite growth.
Putin acknowledged that economic troubles are taking their toll on living standards in his state-of-the-nation address to parliament on Dec. 3, while also warning that Russians should brace for a prolonged period of low oil prices and sanctions.
“I understand very well that people are wondering when we are going to overcome these hardships and what needs to be done in order to accomplish this,” he said. “The current situation is complicated but, as I have said before, not critical.”
Buoyed by a wave of patriotism that followed the annexation of Crimea from Ukraine in 2014 and has continued with the military operation in Syria, Putin enjoys huge popular support in opinion polls in spite of the recession. This reflects the fact that most Russians still contrast the relative stability and prosperity of the Putin era with the economic chaos of the 1990s after the Soviet Union collapsed, according to Carnegie’s Movchan.
“The economic crisis hasn’t yet had a significant impact on support for the authorities,” said Denis Volkov, a researcher at the Levada Center polling company, which found that Putin’s popularity dipped to 85 percent in a November survey from 88 percent the previous month. “Economic optimism is decreasing but the government has been able to prevent panic from spreading.”
Deepening economic difficulties and the government’s inability to keep pensions and wages rising in line with inflation will eventually affect Putin’s popularity, Volkov said. “Remaining bogged down in military conflicts and an over-lengthy confrontation with the outside world don’t portend anything good either,” he said.
Three-quarters of Russians want their country to improve ties with the U.S. and other western nations, according to a Levada poll published in early December. Just 41 percent trust television news, down from 79 percent in 2009, a Levada survey published on Wednesday found.
Putin “understands the danger” facing the economy, Makarkin said. “But he has very limited tools at his disposal right now and oil prices are a factor beyond his control.”