Russia: Largest economic decline predicted since fall of USSR

Russian households have shown the largest decline in consumption since 1991, according to new data just released. A slump of 44% in the value of the ruble has led to a decrease in overall purchasing power of the Russian consumer, and residents are comparing the situation to the fall of the USSR, when savings were completely wiped out and poverty rampant. The biggest source of disappointment comes from declining pensions for state employees, one of the largest sources of Putin’s popularity (as he presided over a 33% increase in funds at the height of the last crisis in order secure his popular rise and to rescue embattled Russian households). Changes in retirement payments are likely to decrease in the coming months, as most Russian government cash reserves will be used to support lenders and industry, most to recapitalize banks.

As a result, inflation is in the double digits and is now expected to push beyond the Central Bank’s benchmark interest rate of 15%. Despite the alarming economic forecasts, President Putin is more popular than ever according to polls conducted in Moscow but this may be subject to a large swing as real wages are starting to decline, retail sales go down, and Putin starts running out of policy flourishes to aid average consumers.

Most Russians blame international sanctions for their troubles, however – the EU slapped additional asset freeze and travel bans on 19 individuals and 9 new organizations which they deemed to be “involved” in the conflict in Ukraine (one of them is Iosif Kobzon, a Russian singer). Despite the ceasefire agreement in Minsk, Chancellor of Germany Angela Merkel had made good on her promise not to relieve sanction pressure until real progress is made in eastern Ukraine.

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News Briefs:

  • Turkmenistan has increased its gas exports to around 160-170 billion cubic meters, according to a new message from the Ministry of Oil and Gas and Mineral Resources. Exports increased in all directions towards Russia, Iran, and China – and provided new estimates about the diversification of export routes of Turkmen natural gas. The addition of the TAPI pipeline and the TransCaspian pipeline will allow for up to 63 billion cubic meters more capacity, but with prices so low for natural gas, it is likely the Turkmen government is trying to recoup its loss.
  • President of Uzbekistan Islam Karimov’s fifth term and near-certain reelection next month was profiled in an excellent article by Radio Free Liberty Europe. Of particular note is that Karimov is turning 77 this year, and rumors of failing health have gripped the media and remittances from foreign labor in Russia dry up in the wake of Russian sanctions and declining oil prices.
  • The ceasefire has once again broken down in Mironovsky, a town of the Donetsk Oblast. Residents have reported consistent artillery fire in the town, which connects the besieged railway junction Debaltseve with the rest of Kiev-controlled territory, making it a key target for disruption of supply lines and residents report they are still living in Soviet and WWII-era bomb shelters to escape the constant barrage, and that no hostilities ceased thanks the February 12 accord in Minsk.
  • The Mongolian Parliament is voting on a bill to develop a casino industry, in a bid to diversify its domestic economy away from mining and to take advantage of the slump in international gaming markets, centered in Macau. Partnerships for construction would target China’s high-roller gamblers – and companies that have indicated their interest include US gaming mogul Sheldon Adelson’s Las Vegas Sands, MGM Resorts, and Genting Bhd, which are keen to expand their footprint to Asia. The target audience, in addition to Chinese customers, would also be Russian and Japanese high rollers.
  • The Chinese Foreign Minister Wang Yi has publicly endorsed an Iranian nuclear deal on an official visit to Tehran – the initial deadline is set for the end of March and a final settlement is set for June 30. Mr. Wang’s statements are telling: “[Reaching comprehensive agreement] is beneficial to uphold its legal rights, including the right to the peaceful use of nuclear power, and for the people of Iran to throw off the difficulties of sanctions as early as possible..”
  • Iran’s Supreme Leader Ayatollah Khamenei has denied a longstanding report that he replied to US President Barack Obama’s letter on his concerns about the Islamic State of Iraq and Syria where he suggested cooperation between the two rival governments. An Iranian Foreign Ministry spokeswoman said that no response letter was penned, despite an anonymous report of a high-ranking Iranian diplomat that Khamenei’s reply had been “respectful.”
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