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Newsweek
3 days ago
- Business
- Newsweek
Russia's Economy Facing Triple Threat
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Russia's economy faces the triple threat of a banking crisis, companies forgoing dividend payouts and a sharp downturn in growth as the sanctions-hit country experiences continued turbulence due to President Vladimir Putin's full-scale invasion of Ukraine. The Kremlin-linked Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) has warned of problems in the banking sector which include an increased likelihood of a run on banks, although it said a full-blown crisis has not happened yet. The CMASF has told Newsweek that a volatile stock market was one factor contributing to jitters. Newsweek has contacted Russia's Finance Ministry for comment. This stock image from January 11, 2025, shows notes of Russia's currency, the ruble. This stock image from January 11, 2025, shows notes of Russia's currency, the It Matters Russia's economy has so far weathered much of the western-led sanctions that were aimed at punishing Putin for his aggression and starving his war machine. However, relatively decent growth fueled by Putin's record military spending has been marred by inflation and a worker shortage impacted by those fleeing the draft and troop losses in Ukraine as experts warn of longer terms problems for the economy. What To Know The CMASF said in a report this week there is an increased likelihood of "a systemic banking crisis" in Russia. Such a crisis would involve at least one of three things; a run of the banks by depositors, non-performing loans exceeding 10 percent of total banking assets, or large-scale bank recapitalizations exceeding 2 percent of the country's GDP. None of those conditions have been met so far, but the risks are growing, it said. In emailed comments to Newsweek, the CMASF said a sharp increase in the volatility of the main index of the Russian stock market (MOEX) is a good indicator of greater economic uncertainty people feel. This week, Russia's stock market took a sharp dive following the threat by President Donald Trump of new sanctions and his jibe after Moscow's drone and missile barrage of Ukraine that Putin was "crazy." The CMASF also told Newsweek a sharp increase in the ratio of money supply to the monetary base reflects the increasing pressure on the liquidity of the Russian banking system. These factors taken together can increase vulnerability and the likelihood of banks experiencing "cash gaps". Fight and Flight In April, the CMASF warned there was an increased possibility of "depositor flight" or a run on the banks. This was caused in part by the prospect of an economic downturn due to Russia's Central Bank setting a key interest rate of 21 percent to curb inflation of 10.2 percent amid warnings this will stifle lending and investment. Russian Firms Forego Dividends It comes as the boards of two dozen Russian companies advised against paying out dividends to shareholders due to declining export revenues and sanctions. State statistics agency Rosstat said that in 2024, Russian companies generated total earnings of 30.4 trillion rubles ($381.1 billion) down 6.9 percent compared with 2023, or a 15 percent drop when adjusted for inflation. Firms in mining and energy are among those foregoing dividend payments. such as Gazprom, Norilsk Nickel, NLMK and Severstal, but other could follow suit, the Vedomosti business daily reported. The outlet reported that the suspension of dividends is linked not only to worse market conditions but also to the high cost of borrowing. Boris Grozovski, an expert on Russia's economy at the Wilson Center think tank, told Newsweek in January that the high key interest rate had put Russian companies in a very difficult position. Rising costs, higher energy tariffs, higher gasoline costs, higher wages, higher transportation and logistics costs, meant that net profits are decreasing, he added. Growth Slump As corporate borrowers are struggling to service their debt and more households accumulate bad loans, Rosstat said last week that growth in the first quarter of 2025 was only 1.4 percent. This is three times less than 4.5 percent in the final quarter of 2024 and almost four times less than 5.4 percent for the same period last year. The Russian economy faces not just a slowdown, but a likely recession, independent outlet The Bell reported, adding that latest official data suggests the economy could dip into negative growth as early as this summer. What People Are Saying Center for Macroeconomic Analysis and Short-Term Forecasting: "The current situation is characterized by the 'resonance' of several negative signals and trends indicating an increase in macro-financial risks." What Happens Next Although GDP growth has slowed, much depends on whether there is a peace deal in Ukraine which could see Trump restore trade between the U.S. and Russia. Kyiv and its allies want Washington to maintain economic pressure on Russia and U.S. lawmakers are drawing up a new list of possible sanctions, adding to anticipation on whether this could force Putin to the negotiating table.
Newsweek
01-05-2025
- Business
- Newsweek
Russia Warned of Spiking Risk of Run on the Banks
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Economic turbulence in Russia has raised the chances that depositors will hurry to withdraw their money from banks, it has been reported. Russia's Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF), which is linked to Russia's authorities, has said there has been an increased possibility of "depositor flight" or a run on the banks. The prediction comes amid economic uncertainty amplified by a record-high key interest rate of 21 percent imposed by the Russia's Central Bank (CBR) to curb inflation fueled by high spending on the military amid Vladimir Putin's full-scale invasion of Ukraine. Newsweek has contacted CMASF for comment. A woman walks past an office of Rosselkhozbank in the Moscow International Business Centre on October 3, 2023. A woman walks past an office of Rosselkhozbank in the Moscow International Business Centre on October 3, 2023. ALEXANDER NEMENOV//Getty Images Why It Matters The CBR last week kept its key interest rate unchanged at 21 percent for a fourth straight meeting, to cool rising inflation driven by Moscow's invasion of Ukraine. The central bank said it would keep borrowing costs high for a long time to return inflation to its target of 4 percent from its current level of 10.3 percent. It also warned U.S. tariffs on imports from the rest of the world could push inflation higher, by reducing demand for Russian oil and weakening the Russian currency, the ruble. Within this context, the CMASF forecast noted "geoeconomic instability" could cause a "panic reaction" among depositors akin to other "shocks" such as at the start of the war in a sign of the turbulence faced by Russia's sanctions-hit economy. What to Know In its April report, CMASF said that the probability of systemic liquidity risks or "depositor flight" has increased sharply based on its early warning system which draws on economic indicators. The system establishes that a risk below 0.3 means there is a low probability, while between 0.3 and 0.5, there is an average probability of depositor flight. This risk has increased from 0.27 in February, to 0.6 in April. The current level has only been reached four times, the most recent in March 2022, after the start of Vladimir Putin's full-scale invasion, when Russians withdrew foreign currency worth $9.8 billion, according to Reuters, as Western sanctions spooked consumers. The CMASF said the situation is aggravated by the growing likelihood of an economic downturn due to the ultra-tight monetary policy of the central bank, the key rate of which is accused of stifling lending and investment. It warned of a vicious circle, in which panic among depositors may stimulate banks to further tighten lending to accumulate liquidity to protect against new runs on the banks. In January the CMASF warned of a huge rise in corporate bankruptcies due to the interest rate. What People Are Saying Russia's Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF): "the probability of systemic liquidity risks ("depositor flight") occurring has increased sharply...(due to) increasing geoeconomic instability which could cause panic among depositors. "A similar reaction to external instability took place during shocks in 2014, 2018, 2020, 2022." What Happens Next Russia's economy could face extra pressure with the plunging cost of oil, its lucrative export, which has forced the government to readjust its budget.
Yahoo
21-03-2025
- Business
- Yahoo
Russian central bank holds key rate at two-decade high
Russia's central bank kept its key rate at 21 percent on Friday, locking in two-decade-high borrowing costs as it battles rampant inflation. Prices have been rising quickly across the Russian economy for months, pushed up by massive government spending on the Ukraine conflict and deep labour shortages. Annual inflation shot above 10 percent last month for the first time in two years, with price increases forecast to average between seven to eight percent this year. "Current inflationary pressures have eased but remain high," the central bank said in a statement announcing the decision to leave rates unchanged. It added that achieving its inflation target of four percent would "require a prolonged period of maintaining tight monetary conditions in the economy". Policymakers raised the key rate to 21 percent in October, despite complaints from businesses and banks that high borrowing costs were hurting economic growth. In January, Moscow-based economic research group CMASF warned that Russia was facing a "large-scale spike in corporate bankruptcies" amid high interest rates. Russia reported strong economic growth for 2024, largely due to massive state defence spending which is set to jump by almost 30 percent again in 2025. That spending has bloated the size of the Russian economy, partially offsetting the impact of Western sanctions, but economists warn it is unsustainable and does not reflect a real increase in productivity. Analysts say interest rate rises may also not be an effective tool to bring down inflation, as so much spending is being directed by the state, which is less responsive to higher borrowing costs. Russian President Vladimir Putin told business leaders on Tuesday that a cooling in the Russian economy was "inevitable" but warned policymakers that it should happen gradually. "We have to act very carefully," Putin said. "So that there is no excessive cooling, as in a cryochamber." bur/bc
