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Wednesday, June 24, 2009

Russian economy continues to slide

06.23.09 - Associated Press by Catrina Stewart - MOSCOW. Russia's economic downturn showed no signs of slowing in May, with preliminary figures released Tuesday revealing an 11 percent annual contraction in the economy during the month. The slide in gross domestic product was worse than the 10.5 percent annual drop in April. During the first five months of the year, the economy shrank by 10.2 percent compared with last year, Deputy Economy Minister Andrei Klepach said. Russia has been the hardest hit of the major developing economies as oil prices plunged last year and demand for metals dropped off. It is widely expected that second quarter GDP figures will show the economy is in a technical recession - often defined as two consecutive quarters of negative growth. Growing fears over Russia's dependency on the oil price and the specter of rising bad loans in the banking sector have spooked investors, who had helped drive Russia's growth in the oil-fueled boom years under Vladimir Putin's eight-year presidency that ended in 2008. Klepach said that a hoped-for recovery had been thwarted by plunging investment, and warned it would be a "heroic achievement" if Russia posted a GDP decline this year of about 6 to 8 percent - roughly in line with official forecasts. "The economy is close to the lowest point of its contraction," Klepach said, according to the Interfax news agency. "In several sectors close to the global situation, a revival has been seen and exports can be expected to grow, but the sectors tied to investment demand are showing a major decline."

Monday, June 15, 2009

Russia dismisses ambassador to Ukraine Chernomyrdin

06-11-2009 - (Reuters by Conor Humphries) - MOSCOW, Russia has dismissed its ambassador to Ukraine, former prime minister Viktor Chernomyrdin, the Kremlin said in a statement on Thursday. Chernomyrdin, 71, who had served as Russia's ambassador to Ukraine since 2001, watched relations between the countries deteriorate sharply when the Orange Revolution in 2004 brought pro-West President Viktor Yushchenko to power in Kiev. Once one of the most powerful men in Russian gas export monopoly, Gazprom, Chernomyrdin's final years as ambassador were marked by bitter disputes between Russia and Ukraine over gas deliveries. Russian prime minister from 1992 to 1998, Chernomyrdin was on Thursday appointed an adviser to the Russian president, the Kremlin statement said.

Thursday, June 11, 2009

HSBC goes retail in Russia

06-10-2009 - Russia Today - Europe’s biggest bank, HSBC, has started retail lending in Russia. Analysts say, HSBC is one of the few foreign lenders taking the chance to enter the local market. The bank launched its first retail branch in Moscow on Tuesday and plans to open 3 more, including one in St. Petersburg, within a month. The lender is targeting Russians able to deposit at least $2400. Tony Mahoney, Head of International business at HSBC, says the Russian middle class has been relatively unscathed by the crisis. “There was a survey recently that suggested that, in three years, there will be approximately 30 million people in Russia earning over $20 000 a year. Now, if that proves to be correct, that makes Russia such an attractive market. So yes, there will be a lot of foreign banks looking to come in.” The bank says it’s cheaper to enter the market at the moment – prices for everything from real-estate to advertising have plummeted. But analysts say, not many foreign lenders are using these chances to enter the local market. Central Bank data shows the market share of foreign lenders is falling, as the rate of bad loans grows according to Rustam Botashev, Senior Bank Analyst at Unicredit. "Two years ago any foreign bank would pay 4 times book just to enter the market. Now the prices are much lower and even they dont have to purchase anythin, they can start up their operations from scratch, starting lending to retailers and get market share like this. But they don’t do this obviously because, in terms of their risk management, they probably think that it doesn't make sense." However, many Russians find established foreign names more reliable than domestic private lenders. Retail deposits in subsidiaries of foreign banks have increased over the past six months.

Wednesday, June 10, 2009

Foreign investment in Russia down 30% to $12 bln in 1Q09

PutinNOVO-OGARYOVO, June 8, 2009 (RIA Novosti) - Foreign investment in Russia totaled $12 billion in the first three months of 2009, down 30% against January-March 2008, the prime minister said on Monday. "Although foreign investment fell in the first quarter amid the economic crisis, there was $12 billion in foreign investment in the first quarter," Vladimir Putin said. The largest investors in Russia during the reporting period were the Netherlands, Luxembourg, Germany, Cyprus, the United States, and France, according to the country's statistics service. He said foreign investors maintained their confidence in long-term prospects for the Russian market and that it would survive the current global financial crunch. Putin said over 60 bids from foreign investors were currently awaiting approval from the country's antimonopoly regulator. In light of potential deals, the owners of strategic mining and transport and machine-building firms are seeking to increase their companies' competitiveness and solve some of the problems caused by the financial crisis, Putin said.

Friday, June 05, 2009

Russia to borrow over $10 bln a year after 2010 - Kudrin

Alexey KudrinJune 5, 2009 (RIA Novosti) - ST. PETERSBURG, Russia's annual foreign borrowing will exceed $10 billion after next year, the finance minister said on Friday. Alexei Kudrin said the figure would be so high because "the reserve fund will no longer be there." He previously said Russia's foreign borrowing could total $7 billion in 2010 but that the country did not intend to seek loans from the International Monetary Fund. As of May 1, Russia's foreign debt was 1.28 trillion rubles ($41.5 billion), up 7.8% on the January 1 figure. Kurdin said earlier on Friday Russia's federal budget deficit could be as high as 9% of GDP in 2009. "The budget deficit could total from 7.4% to 9% of GDP in 2009," he told journalists on the sidelines of the St. Petersburg International Economic Forum. The Finance Ministry said on Monday Russia's Reserve Fund, set up to cushion the federal budget against a fall in oil prices, dropped 11.9% to 3.127 trillion rubles ($100 billion) in May. It earlier said a total of 1.6 trillion rubles will be spent from the Reserve Fund to cover the deficit in the first half of 2009 alone. Budget spending increased in the first quarter as the government allocated additional funds for anti-crisis measures, in particular to support the pension system, provincial administrations and key sectors of the economy, such as the defense and auto industry.

Tuesday, June 02, 2009

IMF predicts sharp contraction as private funds desert Russia

06-01-2009 - Russia Today - The international monetary fund has issued a new forecast for the Russian economy for this year. It's predicting a sharp contraction, but there's some good news amongst the grim statistics. The Russian economy will shrink 6.5% in 2009 according to an International Monetary Fund report presented on Monday. That's in sharp contrast to growth of over 5% last year, and despite stimulus measures equal to almost 10% of GDP, according to Paul Thomsen, Head of the IMF's mission in Russia. “Russia has some strong advantages compared to other emerging markets. The policy of taxing and saving oil revenues means that Russia has the fiscal room and reserves to have a monetary exchange policy that can counter negative shocks from abroad.” IMF experts say the key to any revival is the banking sector. The Russian government claims a level of bad debt of around 10% is not bad. The main problem for Russia lies not in bank balance sheets, but according to Clemens Grafe, Economist at UBS in the outflow of capital from Russia. “The big story there is really returning capital to Russia. The way we think about the crisis, it’s not the oil price or the oil revenue that is missing in the economy, it’s the private sector capital that left when the oil prices fell.” Russia's stock markets rallied to seven month highs on Monday, as demand from China picked up and oil reached over $67/bbl. UBS is predicting a return to growth in the third quarter.

Tuesday, May 26, 2009

Medvedev warns Russian economy's 2009 decline to exceed earlier estimates

Medvedev05-25-2009 - (AP by Natalia Vasilieva) - MOSCOW — President Dmitry Medvedev warned Monday that Russia's economy will perform worse than expected this year and the country will have to squeeze spending for the first time in years. Outlining Russia's budget strategy for the coming years, Medvedev told a Kremlin meeting with government officials and top lawmakers that financial constraints will require strict economizing and tight controls over spending at all levels of government. "In 2009, unfortunately, we expect a sharper fall in the GDP than we had thought," Medvedev said. "The global economic crisis is far from nearing the end." Government figures Friday showed that the economy shrank at an annual rate of 9.5 percent in the first quarter. A quarter-on-quarter 23.2 percent drop includes eleven daylong New Year holidays, making it somewhat less revealing. Officials had forecast that Russia's GDP would decline by 2.2 percent this year, but that estimate has to be radically revised after the first quarter data were released. The International Monetary Fund has said Russia's GDP could drop as much as 6 percent this year — the most pessimistic outlook so far. Medvedev did not give a new estimate for the GDP decline this year. The Finance Ministry plans to present it soon. Russia has experienced a sharp reversal of an eight-year economic boom fueled by high oil prices, during which growth averaged about 7 percent. The economy started to nosedive last fall after the price of oil, Russia's key export, collapsed, investors pulled billions of dollars out of the country and industrial output slowed. Medvedev said the budget deficit will be at least 7 percent of GDP — "and that's an optimistic forecast." Finance Minister Alexei Kudrin told reporters after the meeting that Russia plans to cut spending in all areas, for the first time in years. "We will have to cut spending — including the key areas," Kudrin said without elaboration. Kudrin said the budget for the next three years would be based on a world oil price of $53, which he described as a conservative estimate. Officials have already predicted a budget deficit of between 7 percent and 8 percent. Russia plans to shore up the budget with the help of the Reserve Fund, which has accumulated windfall oil revenues of the past years. Kudrin predicted the Reserve Fund would probably be used up next year if Russia runs a 5 percent budget deficit. However, oil prices of more than $50 and low budget deficits would see the rainy day fund replenishing itself again as early as in 2011, he said. Kudrin said Russia will not turn to the International Monetary Fund for help — as it did in the years following the 1991 collapse of the Soviet Union. But said it would consider borrowing more than $7 billion abroad next year and an additional $10 billion in the years to come. Medvedev pointed to social spending as number one goal for Russia's 2010 budget. The announcement came as Deputy Prime Minister Alexander Zhukov said unemployment in Russia is 10.5 percent, or 7.7 million people — the highest level in years, according to Russian news agencies. Prime Minister Vladimir Putin urged the Cabinet to use state funds efficiently and "provide the full account of every ruble spent," according to a transcript of the meeting on the government Web-site. Putin also proposed to move the deadline for submitting next year's budget to the parliament from late August to October 1 so it could reflect the latest economic developments.

Foreign investment in Russia’s economy drops by 30% in 1Q09

Foreign investment in Russia’s economy drops by 30% in 1Q0905–23–2009 – The Moscow News – Foreign investment in the Russian economy in the first quarter of this year was $12 billion, 30.3% less than the same period of 2008, the Federal Statistics Service said on Friday, RIA Novosti reports. It said the share of foreign direct investment in the accumulated foreign capital was 42%, down from 48% as of March 2008. The largest investors in Russia during the reporting period were the Netherlands, Luxembourg, Germany, Cyprus, the United States, and France. "These countries accounted for 76.2% of total accumulated foreign investment and 76.3% of total foreign direct investment," the federal service said. It said foreign investors prefer to invest in the mining of mineral resources, the manufacturing industry, consumer goods production, and the services sector.

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