Russia Faces a Slump

Economics was once reputed to be the dismal science. To the Kremlin it must indeed seem so. President Putin’s troubles abroad, the payback for militarising foreign policy, are to be compounded by a slowdown in the economy to a degree not experienced for a decade. Gross domestic product in the last quarter grew at an annual rate of 0.5%; far worse than anticipated by the Ministry of Economic Development and the Central Bank. Economists in Russia are now warning of a slump not seen since 2008-2009. It is attributed to falling domestic demand on the back of increased indirect taxes. But other factors, from aboard, have also played a role: the serious deterioration in the economies of Western Europe and Turkey, cutting the demand for gas, and massive capital flight (A. Bashkatova, “Rossiya na poroge krupneishego posle 2008-2009 godov rukotvornogo krizisa”, Nezavisimaya gazeta, 19 May 2019.) And, as if deliberately calculated to make matters worse, the Danes are holding up the completion of the Nord Stream 2 pipeline destined to supply Western Europe with more Russian gas than it actually needs. But if the pipeline is not completed on time for 2020 and if Ukraine persists in blocking the flow of gas through to Western Europe by the southern European route, then the Russians stand the risk of defaulting on existing contracts and ruining their reputation as reliable providers (O. Samofalova, ” Tri glavnye ugrozy postavkam rossiiskogo gaza v Evropu”, Vzglyad ru, 20 May 2019.)

Meanwhile relations with the United States are at a dead point. Of course, Mr Putin may hope that the comedian in charge of Ukraine abstains from the last laugh and finally brings Kiev to the bargaining table. But that is not something he can count on given the way he has treated the Ukrainians.