Russia has fallen into full-blown depression and faces a mounting fiscal crisis as oil and gas revenues plummet.
… Russia is already in dire straits. The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia’s tax income comes from oil and gas.
Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc over the past year, a far deeper cut to living standards than occurred following the Lehman crisis. This time there is no recovery in sight as Western sanctions remain in place and US shale production limits any rebound in global oil prices.
“We’ve seen the full impact of the crisis in the second quarter. It is now hitting light industry and manufacturing,” said Dmitri Petrov from Nomura.
“Russia is going to be in a very difficult fiscal situation by 2017,” said Lubomir Mitov from Unicredit. “By the end of next year there won’t be any money left in the oil reserve fund and there is a humongous deficit in the pension fund. They are running a budget deficit of 3.7pc of GDP but without developed capital markets Russia can’t really afford to run a deficit at all.” ___ Ambrose Evans-Pritchard
Not so long ago, Putin and his pet Russophiles were claiming that Russia had overcome low oil prices and western sanctions, and could look forward to smooth economic sailing.
Russia’s innate institutional weaknesses and risks arising from the Ukraine conflict are putting a brake on investment, Lemay said. Moody’s rates Russia Ba1, its highest junk grade, with a negative outlook.
“The challenge for Russia is to improve the investment climate,” Lemay said. “Institutional challenges, weak rule of law for instance, and the geopolitical situation mean that we are not seeing a favorable investment climate.” ___ http://www.bloomberg.com/news/articles/2015-07-23/moody-s-says-low-oil-price-here-to-stay-as-russia-bleeds-capital
Few silver linings, if any, edge the dark clouds gathering over Putin’s failed kleptocracy. Vodka sales are booming, however.
As if on cue, leveraged money managers started to build up short positions in the rouble in mid-July, positioning themselves for a debt repayment peak in September. This is exactly what they did in mid-October of last year when they increased their short positions in the run-up to the spike in Russia’s external debt repayments in December 2014. ___ https://www.tradingfloor.com/posts/rouble-heading-towards-crisis-again-5686267
As long as oil prices remain below $100 bbl, Russia’s financial condition will continue its death spiral. Oil prices are likely to stay below $100 bbl for years, for over a dozen reasons — including factors of both supply and demand.
US shale oil production continues at high levels, and now oil sands production is coming to the US. Canadian oil sands production is slated to increase as well, despite low prices.
On June 24, U.S. Oil Sands Inc., based in Calgary, got approval from the Utah Department of Natural Resources’ Division of Oil, Gas and Mining for changes to the PR Spring project being built about 200 miles southeast of Salt Lake City ___ http://www.realclearenergy.org/articles/2015/07/28/oil_sands_is_utah_the_new_alberta_108628.html
On the demand side, China’s markets continue to show an alarming volatility, suggesting that the CCP is not close to achieving control over unruly economic swings. All of this volatility is happening despite massive government funds being poured into China markets.
“The market sentiment is extremely fragile so when investors see selling pressure, they compete to sell their stocks,” Dickie Wong, executive director at Kingston Securities, told CNBC. ___ http://www.cnbc.com/2015/07/27/china-stock-market-turmoil-when-will-it-end.html
Without strong demand from China, commodities prices are likely to slump in the foreseeable future.
Partially as a result of China’s falling demand, “weakness [in commodity prices] is expected to continue for the rest of the year before recovering moderately in 2016,” according to The World Bank, which also cited “abundant supplies” of many key commodities, most notably oil — and that’s before any sanctions against Iranian crude are lifted. ___ https://finance.yahoo.com/news/commodities-slump–signifying—150552080.html
Again, on the supply side, the threat of new oil supplies from Iran and elsewhere have oil traders on the edge of panic.
In an era of low oil prices, Iran has among the cheapest oil to produce at an estimated cost of $5 – $10 per barrel. The nation’s strategic geographic position between European and Asian markets is also attractive. European and Asian companies – unfettered by the limits on their U.S. competitors – will no doubt take advantage of this high-risk but high-reward opportunity ___ http://www.realclearenergy.org/articles/2015/07/28/top_factors_undermining_any_oil_price_recovery_108627.html
Will China Join Russia in the Soup Line?
Perhaps China is due for a recession . . .
… if China’s stock market keeps on tanking is the country condemned to another Great Depression? No: Baker is right that this will obviously cause a recession… ___ http://www.forbes.com/sites/timworstall/2015/07/28/is-chinas-stock-market-fall-really-the-great-crash-of-1929-all-over-again/
It’s just that this market breakdown is happening at the same time as some other problems that China is having.
The combined effects of a bursting property bubble, an equity crash and a wave of debt restructuring at the same time have reached critical mass. “Negative forces on growth are strong and self-reinforcing,” he said. __ http://www.telegraph.co.uk/finance/china-business/11766449/China-losing-control-as-stocks-crash-despite-emergency-measures.html
China’s government still doesn’t understand why “the China miracle” happened. Neither do most analysts, journalists, politicians, or academics. And before many of them do understand, it is likely that the CCP will fumble from mistake to mistake until the doomed demography of China takes over.
Just last month, the Economist Intelligence Unit predicted China’s economy will “overtake” the U.S. by 2026. Won’t happen. Because 2026 is also the year China’s population will peak — and then begin to fall.
Growth is very hard when your population is shrinking. Just ask Japan, Italy or Russia. And China’s next. ___ China’s Economic Miracle is Fading
If, as it appears, the two largest components of the “Eurasian Alliance” are experiencing economic hiccups (to put it politely) — and if the EU is shooting itself in the gut by its own immigration and energy policies — there are not many global economic drivers left to push oil demand upward. Certainly not Africa or South America. Certainly not India or Central Asia. That leaves the Anglosphere, and a few other sundry innovators.
This is basic stuff which Al Fin has been predicting for nearly 10 years now, but it takes some people a long time to figure things out for themselves. It never hurts to repeat the obvious, as large parts of the world sink into the global Idiocracy.
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“Free land grants is a powerful potential for developing our Eastern territories and an opportunity to radically – almost six fold – increase the far eastern population from 6.4 million to 36 million people,” explained Alexander Galushka, who is in charge of the program.
People may receive fertile farmland or acres filled with trees “with the potential to sell timber.” VTSIOM public opinion research center found that about 30 million Russians are eager to take up the opportunity:
Some 28% said they wanted to organise individual self-reliance households on their land; 19% said they would like to become farmers while 16% said that the land grants was an opportunity for them to change their place of residence, said the press service of the Ministry for Far Eastern Development.
Russian President Vladimir Putin announced the proposal back in January. Each person can receive up to 2.5 acres of land. Demographics show only 1,100 people have moved to Siberia “over the past 12 months, while the number of people leaving has decreased from 27,000 to 20,000.” Deputy Prime Minister Yuri Trutnev hopes the program will continue the trend.
A few skeptics have voiced their worry over corruption. A similar program was put into place in the 1990s, but many of the vouchers ended up in “the hands of a few spectacularly rich tycoons.” These people fear the same thing will happen this time, but then the oligarchs will turn over the land to Chinese.
“It is yet another fraud by our bureaucrats,” lamented one blogger. “These pieces of land will be given to unknown people and then the land will be sold (sorry, given for rent for 100 years) to Chinese people.”
In January, after Putin announced the proposal, China Daily predicted Siberia will “see an increase in the number of Chinese immigrants.” One expert told the publication this region could “be the main exporter of green food to China.” The expert also said the proposal will boost Chinese immigration since “they could lease land from local residents.”
“It is just like that vouchers story in 1990s, at the end of which a couple of oligarchs will get hold of it and we’ll see 2-3 more agricultural oligarchs, who will hire Chinese people to work there,” wrote another Russian blogger.
Siberia is home to over six million people, but they are spread out across the region.
Independent political analyst Dmitry Oreshkin said the program in the 1990s offered more land, but came with many problems. He doubts many will actually leave for such little land.
“I think this will end up nowhere as there will be no fools going there for the sake of a hectare of land,” he stated, adding:
The only thing is that it might possibly hold people that were going to leave the Far East. If you were to compare it to Stolypin, the difference is that Stolypin was giving a big plot of land as the person wanted to take 30 or 50 hectares, along with a favourable tax regime for foreseeable future. It worked even though it also had problems, because out of every hundred people that moved to Siberia, 30 people were coming back out. Now I can be confident that people won’t be going there; so we have the main question on how to stop people leaving. There is nothing much you can do to a hectare of land anyway. Yes you can feed your family, but there is no way you can start a serious business on a plot of land this small.
No, it’s not just your imagination. Russia is becoming more paranoid.