The Russian Economy Is Cracking, "Social Unrest" Coming In "A Few Months", Official Warns

Tyler Durden's picture

As you might have noticed over the past several days, the Russian ruble is in a veritable tailspin. The inexorable decline in crude has pressured the currency as have expectations of an uptick in year-end budget spending. 

The ruble fell to a record low against the dollar on Monday and depending on crude’s trajectory, could well fall further in the new year. 2015 will likely mark the third annual decline for the currency which is under pressure not only from low oil prices, but from biting economic sanctions tied to Moscow’s alleged role in Ukraine. 

“The wish to hedge potential risks from geopolitics and commodities may well push the ruble to 75,” Evgeny Koshelev, an analyst at Rosbank PJSC in Moscow, told Bloomberg by e-mail this week. “It will be interesting to see if there’s a reaction from the central bank, government and households to this weakening.”

Yes, it will be “interesting”, especially if crude slides even further. Here are Goldman’s projections based on three different prices for oil:

  • At an oil price of US$35/bbl, we think the Ruble will be around Rub72 or close to current levels. Under that scenario we think inflation could be around 6% at end 2016.
  • At an oil price of US$30/bbl, we think the Ruble will depreciate to about Rub77 or 10% below current levels and end-year inflation in 2016 could be up to 6.7%.
  • At an oil price of US$25/bbl, the Ruble is likely to depreciate to the mid-80s and inflation is more likely to be up to 8% in December 2016.

While Goldman is fairly optimistic about what the future holds for the Russian economy - which, you're reminded, is in the midst of its deepest recession since 2009 - the Central Bank of Russia isn't so sure. In fact, according to the bank's "risk scenario," oil prices could hover around US$35/bbl in 2016 while GDP could contract by 5% or more and inflation might be stuck at 7-9%.

Russia's 2016 budget assumes oil prices at $50/bbl. If that proves correct, Moscow will run a deficit of about 3%. However, as Citi noted earlier this month, "a $10bbl decline in oil prices worsens the fiscal position by about 0.7% of GDP."

As Citi goes on to point out, the deterioration in the fiscal position "already incorporates the secondary positive effect of the weaker currency." In other words, the widening budget deficit associated with falling crude prices takes into account the effect a concomitantly weaker ruble has on RUB-denominated oil revenues.

So, combining this with the CRB's risk scenario as outlined above, we're to understand that with oil at $35/bbl, Russia's projected deficit jumps 23% to 3.7% of GDP which will itself decline 5% from a year earlier while inflation runs at between 7-9%. 

If, however, oil were to fall to $30/bbl, the situation worsens materially. Here's Citi again: 

A fall of the oil prices to $30bbl will thus widen the fiscal deficit to 4.4% of GDP. Given that the 2016 budget is based on an oil price of $50bbl, this implies that the fiscal position may deteriorate to -4.4% (-3.0% -2 times 0.7%) of GDP at oil of $30bbl.This is a significant fiscal gap that would be the second largest over the last 20 years (largest deficit of 6.0% of GDP was recorded in 2009).

The fiscal outlook is further darkened by the trials and travails of Vnesheconombank (VEB), the troubled state bank that's been crippled by economic sanctions and is laboring under more than $15 billion in foreign currency debt (which is of course a disaster given the ruble's slide). As Bloomberg reports, VEB may need a massive state bailout that could end up costing upwards of $18 billion. Here's more:

VEB got its start under Soviet founder Vladimir Lenin as a bank to finance foreign trade. Putin overhauled it in 2007. Flush with cash from high oil prices, he pumped 180 billion rubles (worth about $7.3 billion at the time) in to boost capital and took over at chairman of the board a year later.


When the global financial crisis struck in 2008, VEB became Putin’s main tool for managing the shock. It got 1.25 trillion rubles (worth about $50 billion at the time) from the government and central bank to shore up the plunging stock market, help failing banks and bail out tycoons who were facing the loss of their companies to foreign creditors.


By the end of 2009, its balance sheet had more than tripled from before Putin’s overhaul began.



Behind the facade of western-style accounting and international credit ratings, the bank’s decisions were often driven more by politics than business, officials now admit.


“The bank, because of its status, took on certain tasks that can at times hurt its balance sheet,” VEB chief Vladimir Dmitriev said Dec. 22. “We’re talking about the so-called special projects.” Neither VEB nor a Kremlin spokesman responded to requests for comment for this article.


Starting in 2009, VEB spent $8 billion to finance deals allowing unnamed Russian investors to buy up steel plants in eastern Ukraine and keep them running


The legacy of the 2014 Sochi Winter Olympics, which at about $50 billion were the most expensive such games ever, is another big burden on VEB [which ended up] taking control of more than 200 billion rubles of money-losing hotels, ski resorts and other projects.



The takeaway here is that much like the Novo Banco and Banif bailouts are set to add several percentage points to Portugal's deficit, Moscow may be forced to foot the bill for VEB. "Losses on the bank’s huge catalog of Kremlin-mandated projects could reach 1.2 trillion rubles, according to the Finance Ministry, or nearly half the expected budget deficit for next year. VEB faces $7.3 billion in debt repayments over the next few years and effectively has only one source of significant funding -- the state," Bloomberg continues, citing government officials.  

Speaking of the Finance Ministry, former FinMin Alexei Kudrin - who unceremoniously quit in 2011 after a famous spat with then President Dmitry Medvedev - warns that the situation in the economy "isn’t very good." According to comments Kudrin made to Interfax, inflation in 2016 will be ~150bps above the official 6.4% forecast and with oil prices below budgeted level of $50/bbl, Russia may witness significant reduction of government expenses in several industries, or tax increases. What would Kudrin do to ameliorate the situation you ask? Well, we may be about to find out because now, he looks set to return to the government to assist in pulling Russia out of recession. 

"Former Russian Finance Minister and investor favorite Alexei Kudrin is in talks with Vladimir Putin and other top officials about returning to a senior post to help deal with worsening economic troubles," Bloomberg reported earlier today, citing unnamed officials. "Kudrin has met privately with the Russian president and Prime Minister Dmitry Medvedev as recently as last week to discuss the plans, though no formal offer has yet been made."

“Markets will like Kudrin’s return to government as they will assume this means serious fiscal consolidation and some significant and much-needed structural reform -- if Putin lets him take on the ‘power vertical,'" Tim Ash, head of emerging-market strategy at Nomura in London said. 

As is the case in a number of emerging markets, the worry is that eventually, the public will become fed up with rapidly deteriorating economic circumstances even if, as is the case with Russia, part of the blame can be placed with outside antagonistic forces. On that note, we'll close with one last quote from Bloomberg: 

Speaking on condition of anonymity, one senior government official warned earlier this month that the government has only a few months before worsening economic conditions begin to fuel social unrest.

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WTFRLY's picture

You mean the war is coming. Joo World Order loading... ... ... ... 43%

svayambhu108's picture

Overproducing hopium at that rate that now they take themselves.

One can only hope...

But I think the Russian will not stay and look how their country goes to ruin twice

WTFRLY's picture

Things aren't "real" until Americans are hungry and cold. 2018?

Captain Debtcrash's picture

Among other destruction, debt and socialism is distorting the price discovery mechanism in the oil market.  The most likely way this will be rectified in the shale plays is bankruptcy, and unfortunately, civil unrest for oil exporting countries that built their government around oil revenue. Explained here. 

Divided States of America's picture

Americans underestimate the toughness of the Russians. They will deal with hardship better than most people.If one wanted social unrest in the U.S., all it takes is to cancel American Idol and other reality TV shows OR have Black Monday deals at your local malls every week.

And Joo World Order sounds about right, but i will do my best to ensure that wont happen in my lifetime

God's picture

Honest to GOD. Vilad has a free ticket to BOMB THE MOTHERFUCK out of tel aviv.

Keyser's picture

The western muppets are callling for social unrest in Russia... Pfft, the average Russian is 10X harder than their American counterparts... They know what hard times are, while Merkans on food stamps drive their BMW to Wally World to shop for cheap shit with EBT cards... Perhaps these talking heads should focus on the coming social unrest in the land of MOAR because it's coming... 

Morbid's picture

all that could be true assuming that CBR is still a part of the same cabal structure in 2016. people in russia might demand economical change, therefore giving the government political and public backing to enforce the disconnect from the world banking system..

strannick's picture

Guess it depends on whether you're going to pay the counter party or not.

IMF Western Banks want to make sure you do. If you don't , they declare, you will become a "pariah". Iceland discovered this wasn't the case when they told Dutch and British banks to go fuck themselves.

Its just like phone calls from your overdue credit card company, on a bigger scale.

Stuck on Zero's picture

You ever think that a few untraceable smart mines in the Persian Gulf could drive oil prices to $100/bbl in a few days?  I'll bet there are people in high places in oil exporting countries thinking that very thing.

Oracle 911's picture

Just for the record, the Russian FEDERAL budget is in Rub not in USD. So this article totally missed the point.

The point is the Russian will make everything for themselves because the import will be expensive (the USSR redoux in this matter). And what they can't make they will import from their allies for cheap.


Also, according what I heard, the Russian CB will give cheap loans for industrialization (and also they booted out the Rothschildes).

strannick's picture

Guess it depends on whether you're going to pay the counter party or not.

IMF Western Banks want to make sure you do. If you don't , they declare, you will become a "pariah". Iceland discovered this wasn't the case when they told Dutch and British banks to go fuck themselves.

Its just like phone calls from your overdue credit card company, on a bigger scale.

Nexus789's picture

There is also massive wealth disparity in the with millions having no savings or pension. If the economy finally falls of its perch there will be lot of desperate people.

LowerSlowerDelaware_LSD's picture

Russia simply does what Romania and other Communist/Socialist countries do: Keep the people sopoor and so ill fed that they don't have the strangth to revolt.  It is a standard part of the Socialist game plan.  Although, you must also disarm them as Obama uh akbar keeps trying to do.

In the U.S. gubmint schools have ensured that all of the "men" are little fairies afraid of pocket knives and drawings of guns.  There will be no revolution.  Just running in circles, screaming, and play acting in city parks.

Max Steel's picture

BS you know nothing about their economy.

alsm777's picture

I am from Russia and  I know a lot abour Russian economy. Recently I have found Russian statistic agency annual data 1992-2014. Oil and gas production = not changed, Food production = increased, Manufacturing 2000-2015 = plunging. Debt 2000-2015 - from $160 bln to $580 bln. Manufacturing and agriculture workers number 2000-2015 - 15% down. Goverment clerks 2000-2015 - plus 100%. By the way, plunging during yeltsin was much smaller, than plunging during putin. Actually, mr putin = globalist and bilderbergers servant, having order to destroy Russia softly and slowly. He can talk any pro-Russian gibberish, but at the same time his greedy jewish friends pillaging Russia. All government work to fight crisis - just invent new taxes, to get something, they can steal.

Baby Bladeface's picture

Ukrop, better Psaki would not say!

Well done, banana earned the monkey can bite.

alsm777's picture

1) I am citizen of RF, so shut up brainless scum.

2) I am telling truth (there is documents in English too):

Better read this:

putin replaced yeltsin, according to the order of ZOG to ensure final extrimination of Russia and Russian nation.

Baby Bladeface's picture

Dawai, dawai, no analysis, no reflection, Putler leaked, Polo traitors Raska, rolls Putler...

Enchanting and with anguish. Keep it up! To State Department for a salary don't forget to stop by.

And a million jump ropes... And 100500 trampoline for heroes of the ATO...

alsm777's picture

He-he... you blind. putin leaked from the very start. Just tell me, is not your lovely putin was six of yeltsin or (before that) six of sobchak? You think, that yeltsin really feel guilty and gave power to "Russian patriotic leader"?

Better read this (especially book by Bushin):

vened's picture

"I am from Russia and  I know a lot abour Russian economy..."

From Russia but not Russian?  Probably 5th column Israeli worm.

caconhma's picture

Americans know about Russia no more than they know Angola. 

The ZH board is populated by Putin sympathizers and his paid trolls. 

Yesterday I watch YouTub with an economic meeting with leading Russia economists. They are very pessimistic about Rutin's Russia future:

  • Russian Central Bank (RCB) is independent from Russian government and is under complete control of IMF. RCB is methodically destroying Russian economy. RCB only provides funds for financial market speculations and no money for the Main Street economy
  • RCB is deliberately deflating Russian Ruble creating a very explosive social situation.
  • Putin lost control of Russia outside of Moscow. His orders are summary ignored. Russian oligarchy takes all their assets out of Russia including their families and their money. Now, US and US are hunting these money similar to what have been done regarding to Iranian or Qaddafi assets. Consequently, Russian ruling oligarchy is very unhappy with the Putin regime and exploring way to get rid of it.
  • Mr. Kudrin, who was mentioned above, is an IMF who demands to dismember Russia and convert it into Ukraine II
  • Russia urgently needs another Stalin or Hitler. The Putin regime has crossed a Rubicon of no return. It has no friends. It has only enemies. Even Russian Foreign Secretary Lavrov family live in New York.

The bottom  line: 2016 will be a pivotal years for Russia and the USA with no room for the Putin Regime in Russia.

Karlus's picture

I'm a Putin fan, where do I apply to become a paid troll?

TheReplacement's picture

So China, Iran, Syria, Belarus, Argentina, Brazil, India.... and so on and so forth are not friends of Russia?  I know most of them are places none of us would really want to live but Russia is far from standing alone.  Besides, war solves everything as long as one side wins and the other side understands it lost.  And that is where we are going.

fauxhammer's picture

I watched YouTub for a while but all I saw was assholes.

Kirk2NCC1701's picture

As I've said umpteen times before: Unless and until Russia backs their Ruble with gold, launch their Beta-version of SWIFT, and force the EU to buy oil and gas in gold-Rubles or in gold, they are only playing a tactical game, a B-game, rather than a strategic A-game.

The extent to which this is being delayed, is a testament to the level of subterfuge that the Fifth Column of Sayanim and corrupt, self-serving Boyars/Oligarchs are preventing said Plan A from being played.

alsm777's picture

Double post deleted. WTF!!!

alsm777's picture

Yes, I agree. No any good for ordinary people in Russia.

Gothic Optimism's picture

That's why there are FEMA camps, govt handing out military equipment like candy to Police, dismantling Constitutional rights, taking away the guns from legitimate resposible gun owners, etc. You protect us from those awful terroists. We Canadians will be polite first just before we riot ourselves. 

Welfare Tycoon's picture

I will bear the immense burden of offering my residence as a shelter for the population of fine, young Russian women to stay at until strife in the Motherland is over. In the meantime, I will also teach them about freedoms that us Americans enjoy they they so severely lack. 

In return for these services, they can pay me back by holding my hand and having a nice personality.

Yes, that will do.  

Winston Churchill's picture

Sad that you only have a single digit on that 'hand'.

Accident or congenital ?

The unnamed source was speaking from his office in Foggy Bottom.

Welfare Tycoon's picture

Oh yes.

My hand...

Did I ever tell you about the boating accident?

Such a shame.

No need to be distraught though. You would be amazed at some of the things I can do with my digit these days. 



Morbid's picture

could you please enlighten me of the source of the information that made you believe that russian public excercises less freedoms?.. which freedoms are you referring to here? those from the school curriculum?

Nexus789's picture

There is no Socialism in the US, never was and never will be. The US State and its resources are owned, controlled and manipulated by the elites that represent corporate America and other interests. The elites dictate tax policies and the masses of corporate welfare. Benefits are a sop to pacify the masses and hide the fact that there are millions idle. Soup kitchens like in the 20’s and 30’s would make very obvious that the recovery is a lie. The US is not socialist but it is moving towards totalitarian and corporate fascism.

Wulfkind's picture

So the camel fuckers in Saudi Arabia are punishing Russia for supporting Assad and Shia Islam.  At the same time punishing us in the States for Shale Oil production and taking away their marketshare and profits.

And why exactly are we shitting all over Russia?  Seems to me we have a common enemy.

loonyleft's picture

riiight. SA is pulling the strings and Murica is being punished by them. 

I think you are on the wrong site. Try They agree with you there. 

Reichstag Fire Dept.'s picture

Another way to say "Energy Independence Plan " is to say all of the oil overproduction in the world is United States oil production. 

The US is the new producer to the mix here as of late. 

Nexus789's picture

The US (and Canada) is a high cost producer. The US will never be the 'pivot' in the market given this. These will be the low cost producers and the 'oil war' has moved from price to securing contracts. No matter how far prices fall what will be more important is having a locked in customer. I can see Russia supplying more oil to India and China that Saudi for instance.

Kirk2NCC1701's picture

Between the interests and marching orders from Riyadh and Tel Aviv, the mercenary 'Merican Army and Fed will do their masters' bidding, to reshape the ME and attack Russia -- no matter what price the gullible, malleable, neutered Whites/Christians in Europe or N.Am. have to pay. In fact, the bigger the price they pay in terms of a degraded, corrupted and hijacked society, the less they will be able to exert their own will, values, goals and policies.

It's time for these mamby-pamby, hippie, Disney world Christians to morph into Crusade Christians, and kick out ALL foreign Usurpers, Agents and Sayanim.  We need a Charles The Hammer Martel, not Charlie The Fairy Brown.

Kegfreak's picture

War is the way out of this mess and it will be easy to sell it to the Russian people. This suffering is the direct result of the policies of the west and nato.


Coming soon to your neighborhood, too.

Peltast's picture

If Putin goes down I hope he nukes Shitsrael and the Kike rat centrals in Murka: DC, NYC, LA, Miami, Las Vegas, Chicago,.. oh and don't forget London where the Rothschild mafia keeps its HQ.

tmosley's picture

Just back it with gold already, Vlad!

Muse minus Time's picture

Check out the gold reserves that China & Russia have acquired:

Looks like they are already ahead of this propaganda coming from Bloomberg.

samjam7's picture

Social unrest in Russia = boner for neocon and banker devils!