Russia has fallen into full-blown depression and faces a mounting fiscal crisis as oil and gas revenues plummet.
Output from country’s state-owned gas giant Gazprom has collapsed by 19pc over the past year as demand shrivels in Europe, falling to levels not seen since the creation of the company at the end of the Cold War.
A report by Sberbank warned that Gazprom’s revenues are likely to drop by almost a third to $106bn this year from $146bn in 2014, seriously eroding Russia’s economic base.
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Gazprom alone generates a tenth of Russian GDP and a fifth of all budget revenues. It will be several years at best before the country benefits from a new pipeline deal with China.
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.”
A report by the Higher School of Economics in Moscow warned that a quarter of Russia’s 83 regions are effectively in default as they struggle to cope with salary increases and welfare costs dumped on them by President Vladimir Putin before his election in 2012. “The regions in the far east are basically bankrupt,” said Mr Mitov.
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