in welcome to on the money where the business of russia is business. as europe's economy continues to language and global growth sluggish russia's putin warns of a possible recession at home this year's g.d.p. estimates he has ordered the government into action facing a difficult external environment what does russia need to do to maintain growth. i . discuss this i'm joined by vladimir put up of he is the c.e.o. of b.p. capital investment management we also have yvonne carter of he is the chief economist for russia and c.i.s. with renaissance capital and we're joined by ben eris he is the editor in chief of business new europe ok this is the first time we've seen this in years mr putin is getting a little nervous about the economy does he have good reason to. its towards growth

stops in the we haven't seen this for a second in two thousand when he took over the economy boomed and it's been running at you know between six eight percent since and then the growth is going to virtually nothing so they're very worried and i was a bit of a shock to the system. but i mean you know those definitely for a look at the indicator of the key mercury indicators this showing some slowdown in the economy and that's really a function recession also some research shows that if you look at the estimates for the first quarter dip you go down by one to one point one percent that's can be taken when the real real growth rates can be taken by some sort of source also some fiscal tightening which we're done but we would expect something for these are the numbers to get something something the role to to and of course. well you know actually i think well the economy has indeed slowed down i don't think there is a sense of desperation yes that's what i was i don't feel that at all exactly exactly and actually i think it was expected the first quarter will be somewhat tweak given the fact that last year. first quarter was very strong and actually we

were very strong with everybody out there all prices will were high and. if you'd like from that from the two thousand and ten from zero to doesn't and i recession but i just wanted to to point out that we expect the economy to strengthen here as we as you go towards the end of the year so i think this slowdown to see right now is a soft spot that the economy will actually overcome as you go into the end of the year so it's not time to panic yet i think. yeah. probably quite useful in some i was days to go that way in russ's needs goods because it's been living off lots of oil revenues in the past and they haven't had to think about efficiency and productivity and those kind of things and this sport has been even slower than we were expected saying it was the first quarter but it's really slowed a lot more than they were expecting and this is push them into going ahead with making the reforms and of course we have to wait to see if this is going to be effective and of course it's going to take years for these things to really prides

but it has refocused everybody on what needs to be here that some short term measures which can be done when we focus on the more this report was a little long term which should be able to sustain for the groups that i would say increase spending i would walk on the reforms in financial markets and pension reform which really should stimulate growth all the local sources which is really you know make. investments into this economy really you know a few that we'll see but people think about inflation ok i mean what i mean is right but i mean most people don't think about those issues but inflation is something everyone thinks about that is that is right but we expect inflation to actually go down in the second half of the year as as the harvest will be better so i think in terms of the short term measures that you're talking about number one the central bank should be a little bit more aggressive in cutting rates and i think taking over from ignited disagree what will happen and the second thing that they can do in the short term is probably. force the state on enterprises to increase their investment program

this is already happening with gusto which is already happening with lukoil so i think this is the kind of things they can do. individually in a very short time if we step back for a second i mean the cause of this is twofold one is the journals in europe ok i want to get external factors later because here. which is that russia could do nothing about beholden to what happens in europe and that's going badly so that's putting it and secondly there's internal things in the two parts of that as well there's the short term things they can do like cut rates increase spending and they have those plans to keep the economy a bit of a shot in the but then further out i mean this comes back to the fundamental problems with the economy the lack of efficiency the bureaucracy the corruption and these are long term fixes and really missed this chance we should have made those reforms in two thousand and five i mean he did it in your statement to me i would say again still want to say number the long term it's much more important to focus

on the reforms short term that's obvious that small it's remote which can be done but would. have been worse because with economy pulls from private or public funds is this an opportunity situation i think it's an opportunity and as you know this is something into been always talking about every time russia comes under pressure under pressure in terms of law all price or more challenging external environment we're always saying this is an opportunity unfortunately unfortunately they haven't been very effective in taking taking these opportunities in the past agreed yes it is so volatile i mean we don't do smooth growth it's booming at six to eight percent or it's collapsing you know nine percent contraction in the crisis and this is one of the perennial problems but i mean that's to do again with the very top heavy structure of the economy very big companies going the route model. because it really has a growth momentum and they just have what they have and they make money out of it and they try and make more money as a bit and then everything goes wrong and it collapses again. you know we miss the

sort of you know the german middle small and medium sized enterprises and there hasn't been a sense of like we need to get things going we need money now to do the things we're going to do so we're going to turn to the big companies as the source of money and not enough attention has been. on building up the small medium sized enterprises were supposed to go at the best we can i mean it's a way to go it's one of the ways to go obviously you know trucks in the form into russia to improve the world in which to work at the outset of the want. to reduce corruption that's the key it won't stop improve the local source for example for example the pension reform is very important for us because if you look at the pension from the old smart if you look at topical bridge loan pension for fall it's probably ninety percent of all the picks them composed poses no infrastructure no equipment so something which we wish will drive the growth so that's something which i think the russian government clearly understand and it's on the look mr putin has said is it is it easier for ministers what is your sense of urgency i

have unfortunately i can say there is a sense of urgency but i surely do it he wanted me to be very clear that you know he's worried ok i mean he says he's worried it means something i think he's worried but once again listening to him yesterday at his almost five five five hour long conversation we would we do people he didn't strike me as as a person in desperation however if they do what he wanted to do show that he's in control of the government that i think that's one of probably just the kind of an idea he wanted to convey but i just wanted to pick up on something some something the other guest said one area where russia could improve a lot as it is in the so-called east doing business indicators that the world bank compares all the countries by and this is something that putin has put forward is a key objective in his presidency he wants russia to be the twentieth the twentieth place in the world issues for now we all know it's one hundred twelfth so there is still a long long way a long way to go but i think there are certain. effort to improve the fresh. place

by two thousand and eighteen which i doubt even if we should say we're going to be company. i mean events that you know we have a new president so you know this is a second bite of the apple and he set off on this one with a much clearer reform agenda focusing on these are doing business to give we can acknowledge the easy things have already been done but you said no to some of the important things haven't been touched on in one of those of the eight factors that go into the one is connecting companies to power a system russia is a huge energy producer it is also the most difficult place in the world to connect a company to a power supply which is upside down and just fixing that will take russia straight up slightly in the top eighty and it's these issues but this is more of a sort of general economic issues not a big companies should this fixing that particular problem would make everybody's life easier and you see an immediate payback so in that sense are very encouraged that they're focused on pragmatic goals which are actually judged by an external

adjudicator in this case the world bank so this should be some discipline so that's very encouraging but you know they still need to do it but i mean what about the average consumer what are they going to be thinking about in this economy for this year for example think consumers so much more focus and. russia was doing by consumer can we all can you know it's you know that's not what i'm asking i mean you consumers out there while i know it's low and on the field what's what's been the basic you know demand which was for for four more years for example consumer consumable was huge the last couple of years and it was driving the calling it was such much more in moderation with consumers more to the same savings patterns and so special what was what was so the key for if you were the consumer groups and the real top source or all for. and the most was at zero so the key and i was really to turn the call me from being able to remember the consumer which already you know that level of consumption penetration i mean the credit. we moved quite quite quite

far from this which will be with the other countries now we really need to focus more. but i definitely do without actually even though we have indeed indeed seen some slowdown in consumption spending in the beginning of the year which corresponds to the kind of figures that we see on the g.d.p. side the consumer will always spend he will spend on cars he will spend on one cotton he will travel abroad so i don't really waterboard russian consumer in the next ten years but i definitely agree that we should worry about investment investment in infrastructure investment in roads and i think that world cup event in two thousand and eighteen is going to help a little bit but is going to help in certain pockets and i think there is a more a need for a more consistent more comprehensive program to increase the level of investment in this economy to talk about investment in the second half and what about the average consumer. spending like crazy very important means there could be buried too much. but from the west maybe but the penetration of here is so low i mean people don't have mortgages that ever have credit cards and so they can afford support. so i

mean they're going to spend because they still does most of stuff that they haven't got yet you know that we take for granted you know coffee machines and nice a fridge and a better holiday and what have you and that's that's the catch up you know the potential for spending is it remains enormous and this will remain the engine of the growth that underpin everything else and so you're guaranteed of a steady you know drive forward of growth and that's very good for the country and you need to capitalize that and you know when i was first here in ninety three there was nothing and today it's more or less a normal country with some big problems and everybody's course like everywhere else and maybe right you're going to jump in here we're going to go to a short break and after that short break we'll continue our discussion on russia's economy.

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more news today violence is once again flared up. these are the images from world we've been seeing from the streets of canada. trying to corporations or the day.

welcome back to on the money where the business of russia's business i'm peter lavelle to remind you we're talking about russia's economy but before we continue

our discussion let's have a look at this report. while the recession is hitting the global economy russia is secured with a safety blanket this spring the i.m.f. has not yet down its estimates for world g.d.p. from three and a half to three point two percent growth deficit in russia is part of this larger worldwide paradigm we can't you demand in the u.s. and europe have hampered oil experts also the prospect of deflation in the euro zone and the bank crisis in cyprus have added to the negative sentiment that's in the first quarter of this year russian g.d.p. grew by mere one point one percent. as a result the ministry of economic development has upgraded its creative people are cast for twenty three team bringing it down to two point four percent according to russian president vladimir putin these are disturbing symptoms at the same time he stressed that the russian economy has good arjun's of safety. i do not want to

dramatize the situation not necessarily the russian economy has efficient safety net despite growing volatility on global markets prices on oil and other resources are still rather high russia has substantial gold and currency reserves its budget reserve funds are a reliable safety cushion and what is most important people's real incomes are not shrinking but are steadily growing many experts are optimistic about the second half of twenty thirteen among them are analysts from d.t.b. group they see a chance to freshen economy rebounding this would in part be zero to a low base effect and slowing inflation investments into the russian. it has so far been receding this came. that related with cyprus and falling commodity prices however legislation aimed at simplifying some procedures on the way for example

paying taxes was already an easier buy a simplified procedure and the introduction of electronic services that and similar reforms are bound to pump more foreign money into the economy the ease of doing business index for russia has been recently revisited and upgraded the ministry of economic development adjusted the world bank assessment of doing business in russia it took into consideration the reforms that were carried out in twenty twelve and twenty thirteen the latest rankings are russian ride six positions from place one hundred eighty to place one hundred twelve the ministry has calculated just how many points russia would arise if all the planned reforms had been implemented the theoretical result is impressive russia could already be at forty fourth place but for of puts him and his government are really good enough for the logging global crisis. russia's.

ok we heard we heard word cyprus and that report. ricochet effect yeah. i mean we were hoping things were going to pick up a bit faster. the sentiments being depressed and rather than the slow build that we were expecting has been put on the back foot i mean one of the problems here i mean we mentioned investments very partly psychological confidence people businesses because you had my plan any second and we had that last summer where we think that suddenly came to a phantom crisis a crisis didn't happen but everyone including the government reacted as if it had and then with the. just emerges same thing it's another setback to confidence and that's one of the big problems and so we get to some more sort of security looking forward people and start investing and would you agree with that because i think

we'll be looking at what happened the cyprus situation for a while now it's going to ricochet around. a bit maybe too much attention to cyprus really deserves if you will to the so proposal of one one hundredth of the russian economy in terms of that i mean that there is there was an unforced haircut that's a very interesting thing that's what i call theft but anyway. i can hardly disagree with you but the more the more they can say it's really you know also produced all wrong you know if you do it. once very painful to move forward you can't really pull you know you know point with this so it's really you know all the thinks it's slow to continue they're still we. kept our control in the switches which is get them but so you know you can hear that almost there would be some button use put that still in place so it's a big story but it's very important how to move forward in europe with other countries if you know from from a purely response but i don't i don't need to it's a big deal i think the direct market comic effect everybody everybody agreed to go

to very minimal but i think if you think it makes russians want to save more money in their own country or i guess you're referring to the fact that i actually could see some positives from the story in terms of some of the money that has been deposited there are coming back to russia i don't think these are the kind of money that would like to come back to russia and i think they'll probably find out i've been used to get people to somewhere else but again i think for example of a part of baltics but i think the story for us is not there anymore market economics in fact the defect was by confidence via sentiment and unfortunately it happened at a point in the cycle when the russian economy will lose already suffering so we just added to the overall gloomy idea about which double whammy double whammy absolutely. yeah it was just unfortunates and. you know the whole as i said in the beginning the problems external problems are weighing on russia and there's not much they can do about it i mean if you're going to look like that to me is that i mean the countries are against the trouble to get really smaller you know greece

and then. in the next kind of our persevere with these things are getting less and less important maybe but it doesn't help the situation the crisis has been going on for four years typically that's the length of the crisis is going to be just they have to deal with it now it's priced in the crisis in europe i mean that should be some kind of comfort in a way as an enemy you know if there is a crisis so it's fully priced because the thing is also the what's what's now pricing by the capital markets you know the situation will not go worse with the group also we know what's the no is priced with the market it's doing also recession for a couple of years but no no no no there's a snare for them if buffers from external shocks as far as russia russia is concerned i'm still all prices are at comfortable levels one hundred dollars i think that is something that the russians should be happy with so if we have one hundred one hundred or all prices but economies growing at twenty percent you can imagine if all price were at seventy eighty what the growth would have been so i think this provides a kind of

a useful buffer also i think there's some other bright bright spots in the world economy the u.s. economy is actually performing better than expected i think that there is this big debate right now in europe about austerity and there are less and less people that are excited about austerity so might see a little bit of a movement in the opposite direction you know what you don't have got all because you need to spend a little bit more money and i think the public debate in europe is moving in that direction which from my perspective is the right direction here i mean i agree and the everyone seems to agree the second half of this year is going to be better than the first and this was just a soft patch and then going into twenty fourteen and hopefully we can see you know i think you could probably argue that we hit the bottom of this crosses sometime end of last year beginning of this year and we're now looking at a slow growth. and as we come out the other side confidence with bill and things will pick up because at the end of the day russia doesn't have all the problems that they do in europe i mean it doesn't have to end this it has a consumer demand is still there have plenty of credit banking sectors very sound

and there is serious sentiment turns that we can go back to actually concentrating and at the same time we've actually got a kremlin which is more committed to reform that has been you know anytime in the last five years so these are all positives it's just a question of when they came and time should be certain you like that prognosis well i agree with you of the key problem with europe now europe has to be in a big. part of russia and the incremental in also you saw dollar europe the heat on russia and it was all a huge you know i can sort of like. twenty to thirty or forty basis points from a real g.d.p. growth came from the slowdown in the real europe so what's important to the is the key prices for for energy and it's really driving for the by really you know the huge growth nobody expected huge growth in europe so if you see european central bank which mean more and more accommodating seeing other another central bank that would obviously help especially that what we've seen now with the recession it in

place inflation is easy so it's quite comfortable to try to make some some more force on the on one of the models we'll see more sort. of the split in the big surprises you know all eyes will be will be in russia russia this year because oh he's working on the budget through and i hope to continue to have some begin effect on this here because the main the main osi comes from this year but longer term it's always a very right thing to do and you know we we much appreciated the same that really are the numbers for this year look for for more reforms again the pension reforms will help a lot you know but that's what engine energy prices when you get your prognosis for this year on oil. we our forecasts about one hundred thousand dollars. more and more or less stay at the same level in the next couple of years but i just wanted to add to what the gentleman said that i think we should start adjusting our expectations about how and what the russia's new normal will look like in the medium term it's not realistic anymore to expect it to see quarter will be growing

by a six seven eight percent before a crisis russia's new normal is four percent four percent are the kind of growth rates that should be consistent we are the world these were where the state of the russian economy so you know how four percent is something that we should be happy with i think most countries in the world absolutely. i mean i think one of the big changes here and one of the causes of the let me mention this budget rule which ties russia's budget spending to previous oil prices is a very prudent change is a big change and one of the other sorts of has been is that the tumors hands are tied when it comes to spending and there has been a real cuts in spending for the first time in nearly a decade and spending was growing twenty forty percent maximum and i think it's this year it's like two three percent and this is weighing in the long term this is about the volatility of the growth rather you want you want but this is what the

budget group of some sort of stability and so the spending that makes the whole thing a lot more predictable so the new normal is slower growth but it's much more stable and it is stable you can plan and then this is good for long term perspective and so the end of the booms we enjoyed in the in the past will become a thing of the hopefully we can actually start building something a bit more so it's. out of your last word with the disagree with you know they all think you know it was more like with the growth like seventy percent small it's like a bubble but it was like work for you know it's more like look at a steady growth which which really would help to work on the officials or to work in the public theater to work on the on the reforms or something else so it's not so bad after all gentlemen we've run out of time many thanks to my guest and thanks to our viewers for watching us here on the money see you next. instead what are. the i.

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