Economic Ministry now predicts a contraction in 2015, but it will impact its trade partners, including Europe, as well
This is an excerpt from an article that originally appeared at Salon
The economics ministry in Moscow has just forecast a swoon in its outlook for 2015. On a dime, it shifts from a prediction of 1.2 percent growth to 0.8 percent contraction. The math is easy: This is a rip of 2 percentage points right out of Russia’s middle. No sentient American should have any difficulty understanding what these numbers will mean to many millions of ordinary Russians.
The ministry’s report is the first to anticipate the consequences of the several rounds of sanctions imposed this year, the 34 percent drop in the ruble’s value this year and the collapse in oil prices. The last are now far below what Russia needs — about $105 a barrel — if the petroleum sector is to contribute to national revenues.
As detailed in this space a few weeks ago, there are ample grounds to question whether price patterns in global oil markets are the consequence of American manipulations.
As to the ruble, we saw this coming months ago as reports of “silent sanctions,” as financial services people call them, began to come through. Off-the-books sanctions is the better term. A few at a time — HSBC, Lloyd’s — banks began denying credit to Russian enterprises; as documented, these decisions were at the Treasury Department’s informal urging.
Reflecting the creep of interdependence in the global economy, financing from Western banks is vital to Russian corporations of all sizes. At this point, my sources in the markets tell me, the spigot is off: Credit and all customary loan rollovers are virtually unavailable across the board.
This is the anatomy of much suffering that is about to get done. Is the course wise? Is there a point? Is it other than ridiculous to posit some “net-positive” justification for this?
I see nothing good in this whatsoever. I see recklessness.
Think of it this way, as an old friend from Asia days suggests. Currency speculators abandoned the Thai baht en masse in 1997 and before we knew it Thailand had dragged all of East Asia into prolonged crisis. Remember? Now consider the size of the Thai economy — tiny in the scheme of things, and heavily agricultural still.
Now consider the size of the Russian economy. It is the world’s No. 2 producer of natural gas and No. 3 producer of oil. In terms of nominal gross domestic product — standard measure — Russia’s economy, at $2.1 trillion, is slightly larger than Italy’s. Another measure, purchasing power parity, values Russia’s economy at $3.5 trillion, but never mind: Even by nominal GDP, Russia is the world’s No. 8 economic power.
Comfortable now with the sanctions regime, are we?
The cliques in Washington are because the U.S. trades very little with Russia and they have no grasp of limits of any kind. This is cynicism made flesh when you consider Europe’s vulnerabilities. The contagious economic and social crisis is already spreading to nations near Russia’s borders.
As Germans and other Europeans understand, take down this beast and the blood will spatter everywhere. Now you can see, maybe, why one consequence of the Ukraine crisis is a serious deterioration of relations between America and those known as “the allies,” a term that has masked many complications since the Cold War’s onset.
Patrick Smith is the author of “Time No Longer: Americans After the American Century” was the International Herald Tribune’s bureau chief in Hong Kong and then Tokyo from 1985 to 1992.