Archives for December 2014

Spanish Prime Minister Mariano Rajoy.(AFP Photo / Javier Soriano)

2014 has been ‘an economic renaissance’ for Spain, as GDP is expected to grow 1.4 percent, the highest in the eurozone, says Spanish Prime Minister Mariano Rajoy.

“2012 was a year of budget cuts for our country, 2013 a year of reforms, 2014 of an economic renaissance, and 2015 will be a year of an economic takeoff,” TASS quotes Rajoy talking to his conservative Popular Party.

The breakthrough is expected to come on the back of a 0.25 percent increase in pensions, and a 0.5 percent rise in minimum wages, which will be coupled with zero inflation and lower income tax, the Prime Minister explained.

In 2014 an estimated 71,500 new firms were created in Spain, and the number of unemployed started to fall for the first time in 8 years, Rajoy said.

READ MORE: Spain’s unemployment sees one of the sharpest drops on record

“…exports of Spanish goods grew to 34 percent of GDP, which is second only to Germany in Europe, and in terms of foreign investment the Kingdom is the Europe’s leader,” the Premier added.

Spain started 2014 without the eurozone bailout for its banks that managed to get it back on a ‘sound footing’ within a year. Overall, Spain received about €41 billion in rescue funds from Europe.

Official statistics show unemployment in Spain remains very high at 23.67 percent in the third quarter of 2014. This is second only to Greece in the eurozone, where the jobless rate stands at 25.7 percent.

Separate estimates show it might take the country over a decade to bring unemployment back to the pre-crisis level.

READ MORE: Spain unemployment to take 10 years to recover – report

Article source: http://rt.com/business/217843-spain-economy-growth-2015/

Reuters/Enrique De La Osa

The number one crude oil exporter, Saudi Arabia, has projected a $39 billion deficit in 2015. The impact of lower oil prices, along with the decision not to cut production, is putting pressure on the country’s finances.

READ MORE: Saudi Arabia confident oil prices will rise, won’t cut output

The figure was part of the endorsed 2015 budget, which was made public in a statement read out on state-run television on Thursday.

The estimated trade deficit will be Saudi Arabia’s largest on record.

The Finance Ministry said the government will try to save some money by cutting salaries, wages, and allowances that represent around “50 percent of total budgeted expenditures.” But the move could anger Saudi youth, who are already struggling to cover the costs of living in the country.

According to the International Monetary Fund (IMF), about two-thirds of the population works for the government.

The 2015 budget includes 860 billion riyals (US$229.3 billion) in spending and 715 billion riyals ($190.7 billion) in revenue. Saudi Arabia promised to cover the difference by digging into its reserves.

Saudi Arabia’s 2015 budget is probably assuming an oil price of $80 a barrel so it will be seen as a sign of confidence in the market, former economic adviser to the country’s government, John Sfakianakis, told Bloomberg after the budget was announced on Thursday. The assumption is down from $103 a barrel for this year, Sfakianakis added.

“Everyone was expecting to see a budget built on a price around $60 but that would have sent a negative message to the oil market,” Sfakianakis said. “With a fiscal break even price of $80 a barrel, the government is sending a message to the market that we are expecting to see a rebound in oil prices.”

Oil accounted for 89 percent of Saudi Arabia’s revenue last year.

At the latest OPEC meeting in Vienna, Austria, the Gulf country opted not to cut the production ceiling of 30 million barrels per day, despite oil prices plunging nearly 50 percent since summer.

READ MORE: Oil slumps into tailspin as OPEC leaves output unchanged

Saudi Arabia has also made clear that it is unwilling to cut down production, even if oil prices continue to fall further. Last week, the country’s oil minister, Ali Al-Naimi, said that output would not be reduced, even if prices fall to $20 a barrel.

The decision has been interpreted by some experts as trying to weed out new players from North America, who can competitively produce shale oil only at higher crude prices. However, lower oil prices also directly hurt the economies of countries like Russia, Iran, and Venezuela.

READ MORE: $20 oil wouldn’t force production cut – Saudi oil minister

Some economists fear that the deficit in 2015 might be even larger than projected, since Saudi Arabians have underestimated the figure in the past.

“I believe we are headed for a difficult year in 2015. I think the actual deficit will be around 200 billion riyals [$53 billion] because actual revenues are expected to be lower than estimates,” Saudi economist Abdulwahab Abu-Dahesh told AFP. “Spending in the budget is not in line with the sharp decline in oil prices,” he said.

According to the country’s Finance Ministry, the 2014 fiscal year budget is set to post a deficit of 54 billion riyals ($14.4 billion) – the first budget shortfall since 2009.

Article source: http://rt.com/business/217723-saudi-arabia-deficit-oil-prices/

Russian Finance Minister Anton Siluanov (RIA Novosti / Vitaliy Belousov)

The weak period of the ruble is over; there is now a strengthening trend in the national currency Russian Finance Minister Anton Siluanov said.

“The ruble has found a balance and begins to strengthen,” Siluanov said at a Federation Council meeting Thursday.

READ MORE: Ruble at 2-wk high as Central Bank pulls out big financial tools

The ruble strengthened in Thursday trading, reaching 52 against the dollar, the highest since December 2. The euro exchange rate improved by 1.77 rubles compared to the previous close, at 63.75 rubles.

“Currency is the first to feel the pressure. It finds its new ceilings, but then, realizing that its real value is completely different, it finds its balance state,” he said, adding that, based on current oil prices, the ruble is still undervalued.

Siluanov said there’s no reason for keeping high interest rates in the economy for a long time.

The Ministry of Finance and the Bank of Russia will jointly develop proposals to cut lending rates for important industries and companies by the end of the year, he said.

READ MORE: Russian Central Bank hikes key interest rate to 17% to halt ruble roil

According to Siluanov, inflation will fluctuate at year-end at around 11.5 percent. As of December 24, it was 10.4 percent.

After the ruble’s drastic fall on December 15, the Central Bank raised its key interest rate from 10.5 to 17 percent. December 16 was dubbed ‘Black Tuesday’ when the euro touched 100 rubles and the dollar 80 rubles during the Moscow Stock Exchange trading session.

READ MORE: Ruble plummets losing more than 20% in a day, hitting new dollar and euro lows

Article source: http://rt.com/business/217643-russia-ruble-weakening-over/

Finance Minister Anton Siluanov (RIA Novosti / Aleksey Nikolsky)

The Russian Ministry of Finance is to discuss its policy and the economic situation in the country with international rating agencies to “extend their understanding” of the issue, says Minister Anton Siluanov.

“We are interacting [with international rating agencies – Ed.] and explaining the economic situation. Yes, we are talking about the stress in the foreign exchange market; there is indeed a sharp increase in the cost of borrowings in the inter-market currency exchange. It was a sharp upsurge, the consequences are being leveled now,” Siluanov said Wednesday following a meeting of the Russian State Council.

Siluanov added that the country will maintain credibility even if oil maintains $60 a barrel as it has enough gold and foreign exchange reserves. He thinks there is no reason to believe that the Russian Federation and Russian companies have lost their ability to pay their obligations.

Standard and Poor’s has revised Russia’s rating to negative on Tuesday, saying there is a 50 percent chance it’ll drop Russia to junk status in mid-January next year. The rating agency said Russia’s economic profile was becoming increasingly fragile as sanctions, the currency crisis; slumping oil and capital flight are biting.

READ MORE: Ruble crisis LIVE UPDATES

Moody’s Investors Service has also downgraded the foreign currency rating of Gazprom and its subsidiaries to Baa2 from Baa1 with a negative outlook, TASS reported. The move “reflects the ongoing severe and rapid deterioration in the operating environment in Russia, and the heightened risk of a more prolonged and more acute economic downturn than originally anticipated,” the agency said. It placed on review for downgrade the ratings of more than 60 Russian companies.

Aleksandr Prosviryakov, Treasury and Commodities Consultant at PwC Russia, believes a possible downgrade would hardly reflect the reality, as Russia outstrips a number of countries with higher ratings.

“Its [Russia’s] gold and forex reserves position is higher than some of the A-rate countries,” Prosviryakov wrote to RT in an e-mail, adding that the current yields of Russian sovereign Eurobonds are above those of Turkey and Brazil (+200-250 bps) and even BB-rated Hungary and Croatia (+150-200 bps).

“Russia is trading at the same level as Egypt, which is rated at single B (Russia 42 – 6.5 percent, Egypt 40 – 6.6 percent). Clearly, it doesn’t make any sense,” he said.

Prosviryakov thinks Russia won’t be affected seriously by the potential cut as it’s not planning to raise funds at Western financial markets.

“Russia is focusing on internal funding and on closer financial cooperation with cash-rich trading partners like China and the Middle East countries. I do not think that the rating matters too much for them,” he said.

Talking about the stabilization of the national currency, Prosviryakov mentioned the measures taken by the Russian government, such as expanding the amount of the dollar and euro liquidity to Russian banks. He says this was done in order to allow the banks to lend the currency to large local corporations to easily pay-off upcoming external debts. He believes such a measure should relieve the pressure on the ruble, as there will be no more need to purchase large amounts of foreign currency in the open market.

READ MORE: Russia’s Central Bank to provide foreign currency loans to banks to ease ruble

Fitch and Moody’s are keeping Russia’s rating two notches above junk (speculative) status.

Investment grade rating, as opposed to speculative, means the issuer is considered reliable in terms of returning assets to investors. Russia first entered the investment category in 2005.

In October Standard Poor’s held Russia’s sovereign rating steady at BBB amid fears of a possible downgrade to junk status. The agency then admitted Russia’s debt was “moderate” compared to most of the other major world economies.

Article source: http://rt.com/business/217411-rating-agency-russia-downgrade/

RIA Novosti / Konstantin Chalabov

Finnish dairy producer Valio has decided to double cheese production in Russia in light of the embargo on EU food imports.

The company plans to open a new production line in Moscow for its Viola cheese brand, the company’s director for Russia, Mika Koskinen told Finnish Yle agency.

According to Frank Schauff, Chief Executive of the Association of European Businesses, the time to invest in Russia is now, as a weaker ruble has made costs priced in euro much cheaper.

READ MORE: Ruble crisis LIVE UPDATES

Valio, like other EU companies working in Russia, faced problems when Russia hit back at EU-imposed sanctions by banning the import of certain foodstuffs.

READ MORE: Russia bans agricultural products from EU, USA, Australia, Norway, Canada

However, despite the ban the company’s factories in Russia continued operating.

READ MORE: Finnish dairy producer Valio to keep production in Russia

In 2012, 17 percent of Valio’s turnover, or €341 million came from Russia.

The company also supplies juices, fruit drinks, water and other items that aren’t subject to the import ban.

Article source: http://rt.com/business/217367-valio-viola-russia-embargo/

(From left) Tajik President Emomali Rahmon, Kazakh President Nursultan Nazarbayev, Armenian President Serzh Sargsyan, Russian President Vladimir Putin, Belarussian President Alexander Lukashenko, Kyrgyz President Almazbek Atambayev and CSTO Secretary General Nikolai Bordyuzha pose for a picture in Kremlin in Moscow on December 23, 2014. (AFP Photo/Maxim Shipenkov)

Russian President Vladimir Putin has put his signature to a law that makes Armenia a full member of the Eurasian Economic Union (EEU) from January 2, 2015.

The document signed Tuesday will add the 3 million people in Armenia to the 170 million consumers in Russia, Belarus and Kazakhstan.

READ MORE: Russia, Belarus and Kazakhstan sign ‘epoch’ Eurasian Economic Union

The agreement stipulates that Armenia joins the Treaty of the EEU, as well as other international agreements signed under the framework of the Customs Union. It means Armenia will have to revise its tariff commitments as a member of the WTO. The Common Customs Tariff (CCT) of the EEU will be revised as well.

The treaty stipulates transitional periods from one year to eight years for aligning Armenia’s import duties according to the CCT. Applying the technical regulations of the Customs Union will take from 12 to 60 months; three years will be given for revising the issues of intellectual property protection.

Armenia’s President Serzh Sarksyan first said the country was choosing to join its former Soviet ally rather than a European free trade agreement in early September of 2013.

READ MORE: Armenia chooses Russian trade deal over EU

In October this year leaders of Russia, Kazakhstan, Belarus and Armenia signed a treaty that will make Erevan a new member of the Eurasian Economic Union.

On top of this, the Presidents of Russia, Kazakhstan and Belarus signed the treaty for Kyrgyzstan’s accession into the Eurasian Economic Union. The country is now making serious efforts to adapt its national legislation to the requirements of the Customs Union, said President Putin at the EEU summit in Moscow.

Armenia in the Eurasian Economic Union: who wins?

Experts in Russia and Armenia agree that having Armenia in the EEU is beneficial for both.

Armenia’s geographic position between Russia and Iran makes it an important trade link between the two countries that have recently been speeding up trade, the Deputy Director of the Russian Institute of Strategic Studies Tamara Guzenkova said in early December.

Supplies of food from Armenia should also significantly increase, as Russia’s food embargo on Western imports has puts big pressure on the industry, Guzenkova added.

“Armenia could make a very significant contribution to food security of the EEU and Russia in particular, as their production is absolutely clean, good quality, and natural products,” she said.

For Armenia, cheaper imports of Russian energy will be one of the biggest perks, according to Armenia Deputy Speaker of Parliament Eduard Sharmazanov. Gas will be imported at old prices, and the country will be able to import oil products 30 percent cheaper, and acquire weapons at Russian domestic prices, he said on December 4 at a meeting of the parliament.

On a more pessimistic note, Dr Mariam Voskasian, the assistant professor of economics at Russian-Armenian University believes the EEU will test Armenia’s economic strength, as to some extent the country still isn’t ready for full integration, as the Russian crisis has inflicted a painful blow on its economy.

The Armenian economy hasn’t shown high growth rates in the last five years.

“Poverty is increasing along with public debt, general welfare is decreasing, which in turn influences the growth slowdown. Thus, of course, in the current situation the integration is risky for both sides,” she concluded.

Article source: http://rt.com/business/217031-putin-armenia-joins-eeu/

Saudi Arabia’s Oil Minister Ali al-Naimi. (Reuters/Heinz-Peter Bader)

Saudi Arabia’s oil minister said OPEC wouldn’t budge on its decision not cut production, even if oil hits $20 a barrel. He also said the world may never see $100 a barrel ever again.

“It is not in the interest of OPEC producers to cut their production, whatever the price is,” Ali al-Naimi told the Middle East Economic Survey, a weekly oil and gas publication. Naimi added, “Whether it goes down to $20, $40, $50, $60, it is irrelevant.”

Saudi Arabia is the world’s largest oil producer, and is also the most dominant force in the Organization of the Petroleum Exporting Countries (OPEC).

“We have entered a scary time for the oil market and for the next several years we are going to be dealing with a lot of volatility,” Naimi said. “Just about everything will be touched by this.”

Other Arab OPEC producers expect global oil prices to recover to the tune of $70-80 per barrel by the end of 2015, spurred by economic recovery, Reuters reported, citing unmade OPEC delegates. Some of them described as hailing from core Gulf producing nations even see $100 as a real possibility.

#OPEC says it won’t cut production no matter where oil prices go. Going to hit producers hard, windfall for consumers. #US now ‘producer’

— Robin Bew (@RobinBew) December 23, 2014

Oil prices have been sinking steadily since the peak of $115 in June, losing nearly 50 percent, standing at $60.25 a barrel at the time of publication.

Lower oil prices will hurt oil companies, as investors will shy away from putting money into pricey exploration and drilling projects. Overall, oil producers stand to lose more than $1 trillion if oil prices remain at $60 per barrel, according to a report by Goldman Sachs.

The slump also puts hundreds of thousands of oil and gas industry workers around the world at risk of losing their jobs. The UK alone could lose 35,000 jobs should the industry collapse.

READ MORE: 35,000 oil gas jobs at risk as crude price tumbles – study

Conversely, an IMF economist has come out and said that low oil could boost world growth by between 0.3 and 0.8 percent.

Prices took a sharp downward turn in November, after the OPEC oil cartel decided not to cut production from 30 million barrels per day. Combined, the 12 OPEC nations produce 40 percent of the world’s oil. The group meets again in June to discuss production levels.

The group lowered production to boost oil prices following the 2008 financial crisis.

Many analysts believe that influential Saudi Arabia was behind the decision to keep prices low, in order to squeeze out other competitors, namely American shale oil, which has completely changed the energy market in the past 5 years.

The majority of OPEC members are now selling oil at a loss.

Low oil prices are bad news for exporters, especially those who cannot produce oil cheaply. OPEC members Venezuela and Nigeria especially would feel the pinch of $20 per barrel, with many analysts believing it could lead Venezuela to default.

READ MORE: Fitch slashes Venezuela rating to pre-default level

Countries highly dependent on imports, such as Japan, China, India, Turkey, and Europe, will benefit from the discount.

However, it is bad for exporters, especially Russia, which has forecast GDP will fall 4.7 percent next year if oil prices stay at $60.

On the flip side, it’s good for customers. In the US petrol pump prices have already dropped by $1 gallon since the decision was taken by OPEC.

Article source: http://rt.com/business/217007-20-dollar-oil-opec/

A man counts money as he buys blueberries near the village of Borki, some 220 km (137 miles) southwest of Minsk (Reuters/Vasily Fedosenko)

The National Bank of Belarus is closing all over-the-counter currency exchanges in the country in an effort to keep its own currency strong and avoid a domino effect from the ruble crisis.

The purchase and sale of foreign currency at bureau d’change will be put on hold until 2017, except for transactions with the National Bank, the regulator said in a statement Monday. At the same time the purchase of foreign currency through the Belarusian Currency and Stock Exchange from the National Bank will be unlimited.

Last week Belarus, Russia’s close ally in the Eurasian Economic Union, faced its own ‘Black Friday’. The national currency lost 30 percent of its value shortly after the country’s national bank introduced a 30 percent tax for individuals and businesses purchasing foreign currency.The Belarusian ruble reached 14,150 against the US dollar, and 17,400 against the euro, with the net cost of $1 amounting to 11,000 Belarusian rubles, and €1 to 14,000.

Belarusian ruble falls off a cliff … Good thing a number of my former students put some of their savings in gold! pic.twitter.com/WHpDTRphpq

— L (@duediligenceguy) December 22, 2014

“Based on the economic situation in the neighboring countries, first of all, in the Russian Federation, the Government and the National Bank of the Republic of Belarus have adopted a number of measures aimed at preventing the development of negative trends in the foreign exchange and financial markets of Belarus and promote the advantages of savings in Belarusian rubles,” the National Bank explained in a statement.

READ MORE: Ruble crisis LIVE UPDATES

The Belarus central bank also increased rates for the mandatory sale of foreign currency earnings from 30 to 50 percent. According to the regulator, as a result, the daily net demand for foreign currency on the stock exchange fell from $180 million to $3 million, and the daily outflow of deposits in Belarusian rubles decreased from $175 million (2 trillion Belarusian rubles) to $79 million (0.9 trillion Belarusian rubles).

In another attempt to try and protect itself from the ruble crisis last week Belarus agreed with Russia on fixing prices for exported goods in dollars, according to Belarus Deputy Prime Minister Mikhail Rusiy. The two governments also agreed on what is called a ‘food balance’ for 2015, which they are to approve in January at a joint board of the Agricultural Ministries of Russia and Belarus.

On Sunday Belarus President Aleksandr Lukashenko visited Ukraine to discuss political and economic cooperation with his counterpart Petro Poroshenko. In the course of the talks Lukashenko said Belarus is ready to provide assistance to Ukraine anytime and noted an increase in trade despite the complicated situation in the Donbass region.

Article source: http://rt.com/business/216695-belarus-closes-exchange-market/

(RIA Novosti/Vitaliy Ankov)

Russian second largest airline Transaero has denied media reports of possible flight cancellations, saying it has enough experience of the past crises, and can perfectly weather a new storm.

Transaero CEO Olga Pleshakova says the company is a victim of false information and accusations in the media that the ruble crisis might force the airline to halt flying.

“We’ve even got used to the regular provocations that lately appeared in the media. They publish information that is completely untrue,” said Pleshakova as quoted by RIA.

She says the company won’t plunge into a deep crisis as presented by the media.

“We have overcome the crises of 1998 and 2008. We have great experience of finding a way out. As then, all our actions are aimed at safe and reliable transportation, as well as increasing the availability of air travel which is affected by the current exchange rate,” RIA quotes Pleshakova.

She believes the reason for the rumors is the company’s attempts to get a syndicate loan from state banks in order to cover a $41 million debt owed to Rosneft and almost $33 million owed to Gazprom-Aero for fuel supplies.

Pleshakova says asking for loans is a common practice, as state support was widely spread between 2008 and 2009, and is currently practiced by a number of major banks and companies, since they serve as a backstop in all areas, especially in a crisis.

The CEO says the carrier had begun a program to improve efficiency in the critical economic conditions. The program was prepared jointly with the McKinsey consulting firm. It is aimed, in particular, at optimizing the cost of fuel and the cost of ground servicing.

Transaero cooperates with major financial institutions in raising funds using various financial instruments. The airline is in talks with Russian and foreign investors to buy a stake in the business, including the largest Chinese bank ICBC.

Russian Deputy Prime Minister Arkady Dvorkovich said Monday airlines experiencing financial difficulties during the economic crisis, such as UTair and Transaero, may count on state loan guarantees.

READ MORE: Russian bank showers #3 airline UTair with lawsuits amid bankruptcy fears

He believes this would be a potent tool since it increases the banks’ interest in resolving the issue. Dvorkovich added the government is ready to consider expanding the range of subsidized routes to make sure the flights to these destinations breakeven.

Article source: http://rt.com/business/216643-russia-airline-media-provocation/

READ MORE: Russia crisis leaves banks around the world exposed by billions

Many Russian companies have borrowed money from European and American banks, but now the value of their domestic currency has decreased by more than 50 percent against the dollar, so the cost of the loans has doubled in ruble terms.

The risks of a volatile Russia “will come to the surface very soon. Then we will have a banking crisis triggered by the sanctions and also triggered of course by the ruble devaluation,” Mross warned.

The Russian government has debt of about $150 billion it needs to pay off in 2015, much of it foreign held. Sanctions now bar many state-owned Russian credit institutions from borrowing long-term from Western capital markets.

Major retailers like Sweden’s IKEA, Germany’s Metro, Finland’s Stockman want to stay in Russia but have halted sales to recalculate their prices. If they are raised, sales are likely to be dented.

As many as 2000, or one in three German companies doing business with Russia, may have to fire employees or cancel projects as a result of the weakening ruble, warns Volker Treier, the managing director of the Association of German Chambers of Industry and Commerce.

READ MORE: Slumping Russian ruble threatens German economy – top exec

“We would be sawing off the branch we are sitting on if we erected a new wall to Russia’s economy,” Austrian Chancellor Werner Raymann said.

Apple has increased prices for iPhones in Russia by another 30 percent when it reopened its online store Monday. That was the second time Apple adjusted prices in Russia in less than a month, as it seeks to compensate for the falling ruble. At the end of November, Apple raised prices in Russia by about 25 percent.The tech giant doesn’t operate any stores in Russia, but has made clear it is a target market, selling through thousands of licensed retailers. Lost sales mean the company will incur some losses in the market.

Last Thursday, longtime partners Gazprom and Germany’s BASF abandoned a long-planned $12 billion energy asset swap, citing growing political tension between Russia and the West.

Automakers take a breather

European carmakers are having trouble steering through the volatile ups and downs of the Russian currency. Volkswagen, Audi, BMW, Jaguar Land Rover all said they would slow down investment in Russia given the predicted downswing. Volkswagen saw sales decrease by 13 percent in November, when the ruble crisis was just beginning to present itself. BMW predicts it could lose €150 million if it doesn’t readjust for ruble fluctuations.

Korean automaker KIA has suspended sales and even stopped shipments of already paid for cars to Russia, according to Kommersant. The paper’s sources suggest the company is considering returning money for existing contracts and then reselling the cars at higher prices. KIA itself, however, says that the delay in shipments is temporary and caused by increased demand.

General Motors, America’s biggest carmaker with plants in Russia has completely halted sales over the rapidly changing ruble.

“In view of the volatility of ruble exchange rate and with the aim to manage its business risk, GM Russia has decided to temporarily suspend wholesaling of vehicles to its dealers in Russia as of Dec. 16,” GM’s European Opel division told Reuters.

Article source: http://rt.com/business/216583-ruble-crisis-effect-europe/