The economy of the world’s biggest energy exporter is heading for its deepest slump in more than 10 years due to the fallout from the coronavirus. A bigger crisis may be just around the corner.
Analysts at the Kremlin-funded Skolkovo Energy Center warned this month that the nation faces years of economic stagnation as demand for its carbon-heavy exports gradually drops. If Russia doesn’t adapt, budget receipts will “decline drastically” and growth may be limited to less than 0.8 per cent a year for the next two decades, less than a third of what the Economy Ministry is targeting.
President Vladimir Putin has relied on high oil prices as a backstop for economic growth — and his own popularity ratings – for most of his two decades at Russia’s helm. Now forecasters expect that the coronavirus recession will accelerate the decline in global fossil fuel use, with some even predicting that the peak was in 2019, about 15 years earlier than the Kremlin was expecting.
“Oil and gas are becoming just commodities, without the resource rents that were the main driver for the Russian economic miracle at the beginning of this century,” Tatiana Mitrova, director of the Skolkovo Energy Center, said by phone. The coronavirus crisis has likely made the think tank’s economic forecasts even bleaker, she said.
The Kremlin is showing no signs that it plans to move away from the current economic setup, under which almost half of budget revenues come from energy exports. Just this month, Rosneft chief executive officer Igor Sechin boasted to Putin about progress made at an Arctic oil exploration project and Gazprom began design and survey work on a new pipeline to China.
Crude prices have collapsed about 45 per cent since the start of the year as coronavirus lockdowns sap demand. Although the market has rebounded in recent weeks, the price of Russia’s export blend of Urals crude is still well below the $42 a barrel needed to balance the Russian budget.
“The rents that we enjoyed for the last 20 years will never come back,” Alexei Kudrin, the respected former finance minister and now a top government auditor, warned in an article in the Kommersant daily Monday. “That’s a huge challenge for all of economic policy.”
The International Energy Agency forecasts a plunge in global oil demand of 8.6 million a day this year, or about nine per cent, while solar and wind demand increase. The European Union, Russia’s biggest export market, wants to put a Green Deal to become climate-neutral by 2050 at the heart of its plan to recover from the coronavirus pandemic.
In a low-carbon development plan published in March, Russia’s Economy Ministry forecast that coal demand will peak before 2035, and oil demand before 2045. The ministry said Thursday it expects gross domestic product to grow 2.8 per cent next year and three per cent in 2022.
The plan envisages cutting the carbon-intensity of the Russian economy by nine per cent in the next decade. But greenhouse gas emissions – the fifth highest in the world – would still increase on current levels by the middle of the century.
“All of the countries that are highly dependent on fossil fuels have said ‘we must change’ for many years, but they haven’t done it because it’s hard,” said Kingsmill Bond, a strategist at London-based think tank Carbon Tracker. “It’s no longer a question of hope, it’s a question of necessity because people just won’t want these highly-priced fossil fuels any more.”
Security Threat
Kirill Tremasov, the head of research at Loko-Invest in Moscow who is about to take up a new role as the head of the central bank’s monetary policy department, warned in a a Youtube post Friday that an acceleration in global decarbonization poses a major risk to growth. Just over a week earlier, Anatoly Chubais, the architect of Russia’s privatizations in the 1990s, said the drop in oil demand is a threat to the country’s national security.
Russia ranks 109th in the world for renewable energy capacity, according to BloombergNew Energy Finance. The Energy Ministry aims to increase the share of renewable energy in power generation from under one per cent currently to 2.5 per cent by 2024, a fraction of what other countries are planning.
“Nobody raises these questions with Putin, nobody can,” said Georgy Safonov, head of the Center for Environmental and Natural Resource Economics at Moscow’s Higher School of Economics. “Russia is like a huge ship that is moving in the wrong direction. If someone wants to improve part of it, it poses a risk to the whole ship.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
