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The one shock Russia dodged is finally set to catch up with Putin in 2016

Russia's President Vladimir Putin waits for President of Georgia's breakaway region of Abkhazia Raul Khadzhimba (not pictured) before their meeting at the Novo-Ogaryovo state residence outside Moscow, on February 18, 2016. AFP PHOTO / POOL / SERGEI ILNITSKY / AFP / POOL / SERGEI ILNITSKY

MOSCOW / Bloomberg

After deflecting pressure in 2015 with salary reductions, part-time work and unpaid vacations, companies are increasingly opting to cut jobs as the economy enters its second year of contraction. As Russia’s biggest companies from carmaker AvtoVAZ to nuclear plant operator Rosenergoatom plan job cuts, Labor Minister Maxim Topilin predicts unemployment reaching the highest since 2013 by mid-year.
With employers already hunkering down after oil’s collapse and the crash in the ruble to record lows last month, the prolonged downturn is giving way to adjustments in the labor market that are further squeezing household finances. As expectations fade for a quick turnaround after the biggest drop in consumption under President Vladimir Putin, the challenge for authorities is how to contain discontent without further straining the budget before parliamentary elections later this year.
“Businesses are adjusting down their expectations of future demand,” said Tatiana Orlova, a senior economist at the Royal Bank of Scotland Plc in London. “With no reason to expect a quick recovery, businesses are likely to start gradually shedding labor they have hoarded in 2015. Unemployment is unlikely to peak until strong signs of the economy turning the corner.”
While the jobless rate remained unchanged at 5.8 percent for a third month in January, better than 6 percent forecast by economists, people are seeing unemployment and possible job loss as the biggest threats facing Russia and them personally, a Levada Center poll showed this month. Joblessness peaked at 9.4 percent during the last economic crisis in 2009 and compares with a rate of 10.4 percent in the euro region. “It’s necessary to do as much as possible to soften the negative consequences of the crisis for people, for the citizens of our country, to keep the situation with unemployment under control,” Prime Minister Dmitry Medvedev said on Thursday in Moscow during a government discussion of its stimulus plan.
The anti-crisis plan the government is drawing up includes plans to support the labor market. Regional governments will initially get 3 billion rubles ($40 million) to keep their level of unemployment down, while 7 billion rubles will be allocated for crisis-hit company towns — where one employer dominates the local economy, according to Topilin.
In case joblessness deteriorates, a further 5.5 billion rubles in budget funding will also be available, Topilin told reporters in Moscow on Thursday. He predicts unemployment, which fell to a low of 4.8 percent in 2014, will reach 6 percent this year for the first time since 2013.

Economy Shrinks
Every 1 percent drop in real gross domestic product results in a 0.2 percent increase in Russian unemployment, compared with a jump of 0.3 percent for countries in the Organization for Economic Cooperation and Development, according to Artem Biryukov, an economist at HSBC Holdings Plc in Moscow.
The economy of the world’s biggest energy exporter contracted last year for the first time since 2009, shrinking 3.7 percent amid plunging investment and consumer demand. The renewed weakness in oil prices has put the country under increasing financial pressure as international sanctions continue to limit its access to global markets.
Disposable incomes fell 6.3 percent in January from a year ago, the Federal Statistics Service in Moscow reported Thursday. That compares with a decline of 2.3 percent forecast in a Bloomberg survey. Wages adjusted for inflation plunged 6.1 percent in January from a year earlier and retail sales were down 7.3 percent, the statistics office said.
The deficit, already at a five-year high in 2015, may exceed the government’s target of 3 percent of GDP if oil averages $30 a barrel. Russia gets almost half its budget revenue from oil
and gas.

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