Putin puts on a brave face, but the tumbling ruble tells Russia’s real story

Russian President Vladimir Putin held forth with customary brio at his meet-the-press session on Thursday. This, now annual, event allows him to answer questions of the “Mr. President, exactly why are you so wonderful?” sort from adoring local journalists.

However, not even Putin’s presentation skills can paper over the cracks in Russia’s economy, which are growing alarmingly.

The country was never going to do well in the face of a commodity price rout, and sure enough the ruble has been the worst-performing emerging market currency over the past month, falling 6% against the dollar. Indeed, it is now hovering around record lows, with the greenback getting you RUB71.018.

This is hardly surprising given the ruble’s link to global oil prices, well illustrated by the chart below.

Source: Capital Economics

And things don’t look that much better for the Russian currency or the economy underlying it in the New Year.

“Looking ahead, the combination of persistent capital outflows, a fragile economic recovery and political concerns, mean that the ruble is likely to remain under pressure,” writes Capital Economics’ Liza Ermolenko in a note on Friday.

What makes matters worse for Russia is that oil prices are falling at a time when Europe is also using a lot less of Russia’s natural gas thanks to a relatively mild winter and easy access to a cheaper energy alternative in oil.

Russian consumers are also taking a hit, with both wages and retail sales collapsing. For all Putin’s showmanship, it seems very unlikely that Russia or its currency are going to loom large in the analysts’ New Year recommendations.

Originally published here: http://news.markets/commodities/putin-puts-brave-face-tumbling-ruble-tells-russias-real-story-7056/