Putin May Struggle to Ride Out Oil-Price Plunge, Osborne SaysAndrew Atkinson
Falling oil prices are heaping pressure on Vladimir Putin, U.K. Chancellor of the Exchequer George Osborne said, as the Russian economy confronts its first recession since 2009.
It is no longer clear that the Russian president can “ride this out,” Osborne said in a speech in New York today. “The Russian economy has not, sadly, made the investments in supply-side reforms that we would all have wanted to have seen” during the past couple of years.
Osborne spoke after the ruble tumbled past 60 per dollar for the first time, falling the most since 1998, as traders tested the willingness of the Russian central bank to defend the currency. Oil’s slide and sanctions imposed by the European Union and the U.S. over the conflict in Ukraine are undermining confidence in Russian assets.
The economy of the world’s largest energy exporter is set to contract 0.8 percent in 2015, the government said this month. Brent crude oil has fallen 45 percent this year to about $61 a barrel, hitting revenue and stoking inflation in a country that derives about 50 percent of budget revenue from oil and natural gas industries. Russia is set to post its worst capital outflows since 2008 this year.
If oil prices remain at about $60 a barrel until the end of 2017, gross domestic product will probably shrink 4.5 percent to 4.7 percent in 2015 and 0.9 percent to 1.1 percent in 2016, the Bank of Russia said in a report issued today.
The downturn marks a plunge in fortunes for Putin, whose first two terms in power coincided with oil prices rising from about $25 a barrel to a peak of $140 during a decade-long run, boosting living standards.
The ruble, which has depreciated almost 49 percent this year against the dollar, is the worst performer among more than 170 currencies tracked by Bloomberg. The currency plummeted more than 10 percent to 64.4455 against the dollar as of 9:32 p.m. in Moscow.
Osborne made his comments in a question-and-answer session after addressing the Economic Club of New York. He said cheaper oil is, on balance, “a net positive” as it may boost consumer spending in the U.K., the U.S. and the euro area.