certainly january was quite weak and the main culprit was fixed investment so the investment side continues to be the weakest link in russia's growth performance but there is hope that the in february we might have some we're covering especially on the consumption front because we have the olympics and according to various estimates the contribution from the olympics for russia's g.d.p. could be as high as zero point three to zero point four percentage points for the year as a whole so on a monthly basis of could be even more emphatic. so for the quarter as a whole it will be a difficult period but there are some rays of hope and some triggers that may make russia look a bit better than in january you. bring if i might look just beyond the first quarter just a little bit because i think we're rushes today they need to think about dealing with some of the structural problems in the economy effectively getting away from

the oil and gas and the commodity reliance that they have which has been a theme now for quite some time but we're coming to the end of the sort of decade when we could rely on those revenues and we need to diversify into different industries i think if we don't do that russia risks being stuck around two percent g.d.p. for an extended their to the economy hasn't been used to for a long time absolutely and this is this is really the big change here is that it's not that there's slow growth it is that compared to the decade preceding which is extremely slow growth now you know i mean two percent two percent feels like recession of one point three percent last year and it hurt you know russia has been used to five six seven percent growth and you know is significant slowdown that is relatively speaking is feeling like like a recession even though it's not it's not forget that we are still seeing significant some some growth specifically within the consumer sector the consumer sector last year was that was the thing that drove russia g.d.p. growth. we already had fixed income capital expenditure which was down only you

know not where we're hoping that that will pick up but a problem looking forward into the future is potential slowdown of the consumer if the can this is but always been the golden egg particularly in the last five or six seven years absolutely the consumer was the main force and russia's economic growth partly it was due to the budget financing which consistently supported especially the lower strata of the population in the middle class and of course external conditions were relatively favorable as well with high oil prices and that was a key factor supporting the consumer now more recently in the past several years we've seen the significant growth in lending and consumer lending that started to become a major factor it even to such a degree that it became a concern for the central bank for the monetary authorities because it was actually too fast so too much you could have put a bad western habit because of the great snow i totally agree i mean this i think

peaked last summer it's now coming down a little bit but if you look at the level of debt that the average russian consumer has consumer debt it's really at a level that is very comparable with eastern european countries it can't go much higher right now and beyond that it's not secure debt it's not mortgages it's not cars it's basically cash loans that have been used for consumption so this worries me a little bit even though the consumer is still the major driver of the economy i am not confident that this can continue for a long time you know we see we've seen n.p.l. was across all banks were rising significantly and if you go outside of russia i believe it's about forty percent of net disposable income is spent on interest and capital repayments which he said it's a major states really experiencing i would say even before two thousand and eight personal debt was something that was hardly talked about it already this country yeah i mean one of the things that. to the banks obviously the c.v.r.

is as i stepped in and with the new leader is increasing provision of course a large number of russian banks we're seeing the proliferation of nine hundred russian banks being shrunk shrinking down which is a good thing we want strong sustainable banking sector that isn't pushing at my growth you know twenty thirty forty percent and you know that's that's unsustainable and you know we're all talking about you know since the middle of last year but this is when the government shifted gears ok because there was an expansionary policy and then what i call russian austerity came in but there was a plan behind that is that it would slow down the economy though in the second quarter third quarter of this year we would see the for wish in the fruits of that plan is it still on track yeah i think the understanding is that. quality matters probably even more in the near term explain to our viewers what that means because of the world but all of that we want this to productivity we want. through greater

efficiency rather than just through high oil prices and partly because of that i think there's a certain we think in terms of the economic strategy whereby they're looking to the government is looking into budget spending looking into the possibility of cutting back some of the things there that proved to be inefficient there is there seems to be you know a measure on the part of the government to try and evaluate the efficiency of various parts of going to do something new for this economy because i haven't heard this kind of talk before we've all talked about diversification and we've been document that for a decade but this kind of quality growth the issue productivity this is something that's new on the internet you know i think this is the diversification of economic growth this is what you're talking about the question is how do you actually get it to happen it's not a simple question. in my view the key is for private sector entrepreneur rules to unlock the regulations to unlock the bureaucracy. that holds them up from starting

businesses and there's many things like that so if russia can do that i think the seeds for. better distribution of growth amongst the economy is there and that would make the country so much less file tile going down the road no depends on the commodity cycle or much less than we see today. is this you know we were looking at kind of a threshold here a turning point here and i think you know what tim just said is very very interesting because it's now moving away from state companies because that's you know the state takes the state company's image been so much focus on that so much money thrown out it does well here but it hasn't addressed the productivity issues and from what tim just said here now we have to look at the private sector more i completely agree that the the problem he's not getting the growth in entrepreneurial young russian businesses where there are there are fewer startups now than there were a few years ago whether it's because of bureaucracy whether it's because of the collapse in the ruble there are many factors but e.t.s.

it is something that needs to be addressed and not just from the from above it needs to be if you have groundswell of of russians wanting to push forward where they see where they've stopped doing because of structural reform or because of many other fears that they may have it's something that for the future of russia the dam needs to break and they need to be. a mass of young twenty's and thirty's pushing forward and start in the room business is very the number of s s and means is significantly lower than it needs to be does the government get it from what we just heard. it seems like the government to starting to look into the possibility of compiling a new reform program precisely along the lines of a structural effort at boosting productivity finally the focus is more short term previous programs reform programs where for ten fifteen twenty years now the focus is on the next several years so hopefully that. kind of effort will lead to

something akin to what we saw in two thousand and two thousand and one during putin's first term the most successful form program that we've had in decades the graph program if something like that is rolled out later this year i think this is one of the potential drivers for the economy and for the markets this year can they don't have much choice do they i mean this is you know this is we have a. government that has been able to garner support because the economy has been relatively successful and we've all remember the one nine hundred ninety s. and remember their early to thousands now again this kind of turning point where they it's not the if they want to do it they have to do these things well i hope they see it that way peter but i'm i'm not sure yet let's see there are a couple other tools i think that are out there that could really help this economy the first is more investment in infrastructure which is something that mr putin talked about a year ago it's easier said than done but it's terribly needed in this country and

it would really that's that's a disappointment which itself is saying you know the short term it is in many ways they have to start thinking more short term and infrastructure that's a big big it's a big one but we shouldn't forget some of the medium long term ones the other thing is building institutions that will support private businesses like financial markets i think the work that's been done in you know rebuilding the stock exchange here improving the registry system all of these sort of technical things which most of us don't spend time thinking about that's how you get to have institutional investors start to bring money into russia and that's how you get russian companies that start to be able to raise money in russia so these things shouldn't be forgotten either i think there has to be and they're very doable and we are absolutely i mean the cost of the thing is significant over to europe there were security it makes a big difference there's more local shows and. as well as we had previously and this is something that you know we do want institutional money we don't want traditionally the russian stock markets may vary. i like to offer an awful lot of

money flowing in and i whenever one of you wanted a high beta for russia to be have long sustainable long term growth needs to institutional substantial institutional money from overseas to be flowing inside and there's little changes make do make a big difference yourself before going to break you and yes i think this is precisely the issue for us the stock market has been underperforming throughout the past several years on the issue there is quality we need quality investors we need long term investors saw there were forms that were conducted they certainly were very important we need more ok gentlemen we're going to go to a short break and after that children we'll continue our discussion on russia's economy state.

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and russia at least being gay is not criminalised there are absolutely no punishment for being gay in russia the only thing that. is spreading information family information on nontraditional sexual behavior what are you going to legislate against couples who swing you know who. you know trade partners or is it only a certain type of sex that you're legally able to you know it is so why

is propaganda you know it's so unclear. welcome back to on the money where the business of russia is business i'm peter lavelle to remind you we're talking about russia's economy you know sort of everybody coming into this program my staff my friends my landlord my cleaning lady we all want to know one thing what's going on with the ruble well the thing with the ruble is that it's very interesting that starting from last year it started to

track emerging market currencies such as the turkish lira the brazilian currency the south african currency so it's essentially now within this war tax of the currency crisis and you know to some degree you look at it from within russia you think why is russia within that war tax because really you look at russia sovereign balance sheet it's much stronger than a lot of these emerging markets russia has a current account surplus the level of oil prices is relatively comfortable so to some degree this is certainly i think to a large extent an external factor that is impacting russia again and something that again underscores the significant dependency of russia on the external factors. so i would just add two things i think one we can't forget what's going on in the united states with tapering which is really been the catalyst for almost all of the problems in the emerging market currencies and russia has not been as as affected.

much as some countries like turkey argentina in three days there are sixteen percent down i mean it was an absolute disaster i think russia like you said because of its reserves and its approach to the currencies a little more isolated and insulated then these other countries so i think the other factor here is that the central bank is no longer targeting the value of the currency per se they're looking at inflation they're looking at domestic interest rates and so you can't have both and so right now the tradeoff seems to be will tolerate a little more weakness in the ruble as long as we can continue to stimulate growth domestically that's a trade off is that a good mixture there yeah i mean i would also have an obviously to push it in rubles not great for inflation. with central bank targeting inflation you know that may be you know we've talked about potential growth prospects prospects in russia.

rising inflation is not great and it's a perennial problem that this country has had in over the last really you know it's fundamentally i think that will weaken this is not great for us not just near term but longer term as well because the ultimate issue for russia is the need for trust trust on the part of the population on the part of the economic agents banks and the will and russia's assets and that sizable depreciation is of course a bit of a blow to the will and that regard and i think short term of course in terms of consumption this weakness in the world will is a negative factor so i think certainly this is a key risk factor for us this year and a lot again depends on this u.s. tapering issue how it will progress on how emerging markets will react let's talk about capital outflows that continues to increase i mean it was a bad month in december. january was even a little bit worse here what's driving the capital outflows right now. you know i

think. it is the same phenomena that's been driving it for years which is i think a lack of trust in keeping assets in this country and also a lot of investment inflows and we just don't have as much coming in as we should have i would say so i think it's the combination of those two things unfortunately most russians that i know want to have assets outside of russia so this is a fundamental i think culture that needs to shift that plus attracting institutional investors to come in only then can you have a balance what kind of trigger does russia need to have this the capital and capital flows coming into the country just going to place before it for a major i mean we have to remember that one of the hunt for it's actually russian companies investing overseas so the headline number he's nightmarishly bad but does include these very positive number that should give russia a major benefit in the future it's true i mean this is the number itself is

a is an exaggeration because it is russian money ok it is being parked someplace else exactly and actually if you look at the scale of these outward investments by russian corporates a lot of them blessed by the kremlin coordinated with the kremlin. abroad and to europe and to the united states i mean the scale is quite significant and is a significant part of the overall outflow the other issue is that a lot of this investment is very inefficient so there is a lot of work that needs to be done by the government in coordination with the corporate sector to try and make sure that going forward state companies are for far more efficient in terms of how they approach these these outward flows and another issue is of course the offshore ization that was very prominent last year and probably will continue to be a significant issue during russia's. presidency and the g eight that's something that is going to be a major topic there and of course the issue for russia is not just to you know make

sure that there are no loopholes. with regard to the shores but also there are some carrots there are some factories that yeah bring in whatever investment well it's about time isn't it i think offshore financial centers is now become a global issue and i think that last year and really escalated i can tell you within the world bank right now we look at this very very carefully and anybody that doesn't pass the global alliance test in terms of an offshore financial center we will not invest there and they're going to be more and more investors that do this so i agree i think that this problem absolutely needs to be resolved and i think it we're making good progress i mean i'm going to join the conventions we go well for if it's not complete agreement. as an idea is just slowly dying it's something the world will slowly waterway ok let's talk about you know this quarter and moving forward what kind of external things should the russian economy

be looking at because if i remember correctly about a year ago it was we still were you bullish on the emerging markets and then developed markets it was a cloud over them it seems like it's reversed right now yeah i think one issue is certainly the u.s. tapering that's going to be probably the key issue for the year as a whole for emerging markets overall the other concern is that not only are there signs of weakness in emerging markets but we need signs of weakness in the developed world so the question is is it really proper for the developed world to start thinking so aggressively about tapering the stimulus and then of course within the emerging markets world there is the issue of ukraine there is the issue of china posting that we figure is so there is a still a significant range of risks downside risks for the global economy this year this year downside no i i agree i would just maybe focus on europe for

a little bit because it was never. in the last five years really an engine of growth for russia now we're starting to see a softer form i don't know how much. sort of energy it is behind it i don't know if it's going to last but it's very important to russia in terms of trade i mean it's just fundamental and it's also the largest investor as well exactly so i think if we if we see continued improvements in the overall economic situation in europe this is the biggest potential plus for russia the second thing which i think is more of a risk in the medium term is china because it's really the elephant in the room i would say and china i think is going to have a pause in terms of growth in the next sort of six to nine months simply because i think at the municipal level and somewhat at the national lover the country is overextended and so it needs to be leveraged itself a little bit and i think that this is going to have not such a positive effect on the prices of commodities and oil and gas which is of course

key to russians economy something we had a shot a shadow banking in china is really the problem i mean that your fictional banking sector is enormous the shadow banking sector well basically you know deposit it is going to try to get over and above the official usual yield. is beyond extended we're starting to see a large number of defaults with it with companies that are borrowed from that sector it's a it's an issue that needs to be addressed the chinese know they say i mean again if they haven't fully aware of it but it is a major problem to the world economy i will agree that europe i think case you know of the flat earth those that seem to have got something right for the time being for the time being they benefited from the rest of the world growing and that i just mean we floated naturally but i think that will significantly benefit russia probably a negative for russia restate the warming iran u.s. relations and what that does to potentially just oil prices for me that's a that's

a little concern for looking so far the gold price has been quite right. i am comfortable. stable it's one of the amazing things about the past several months you know how you know it's you don't worry about a rainy you know you worry. i think there's always going to be talking about you and i want to just have your little bit. talk to our viewers here how does the russian consumer feel right now and what is the russian consumer thinking about. well i think the russian consumer is. more in secure than say last year over the past several years because of the ruble dynamic certainly the ruble appreciation is a significant blow. related to that of course is ruble depreciation leading to potentially higher inflation. the other factor is the slowdown in consumer lending that something bad is actually seen by the central bank as a good thing but on the other hand in terms of headline growth figures this is

a bit of a negative so it's basically a transition i think for the economy but also for the russian consumer for from quantity to quality and to some degree because of that will see i see. that the dynamic here in this market here is that patterns are changing your people want better quality but maybe if you were good steve i was going to say i think that the average consumer is becoming more sophisticated in many ways in terms of the quality the products that they choose but also looking from the banking side also in the price of the credit they take so this is a process making is very new in this country and people are just getting used to the idea of understanding gee if i paid this percent and i paid this fee that's a lot i'm not going to do that so i think this is a good thing but you know consumer credit is still growing it will probably grow twenty five percent per year this year and so it's not shrinking so i think what consumers are doing is using their their their roubles and their credit more

judiciously they're not buying big things like cars. and that's not they're focused on things that make a difference in their day to day life seconds. the consumer is actually slowing down quite significantly retail sales across russia were necessarily down year on year this is a worry looking forward as we all talked about the consumer being part of the growth ok gentlemen many thanks to my guests and thanks to our viewers for watching us here on on the money see you next time and stay with our team. when i close my eyes i see people in mosques and. you know sometimes i think that you're a model in itself is a face covered by a mosque. with people in mosques on both sides of the barricades.

and you know sometimes it feels as if all of ukraine is know. this is the media leave us so we leave that maybe. by the same motion security. policy there's a goal. is that no one is asking with the guests that you deserve answers from it's all politic only on our team. i think that in all of these areas where you have the rise of what is called a new right there were shadows faction with left wing keep gemini. my friend

in berlin does not seem to be aware of how widespread is this should germany is and having spent the last forty years and in an academic lunatic asylum i assure you that it is total in many many quarters of american life. i was in academia for a while i found it in a straight jacket as well a dime's so i'm going to jump in london yeah i mean i think spending time in the lunatic asylums is kind of the fact of his you know thinking a little bit to the point is that in the u.k. the. values have changed cultural values have changed more broad need to become much more color and much more open much more liberal and space even in the united states. rights. to the.

pain of the young girls cammo for the future han are. between two and three hundred million guns the united states so you can act like they're not here and keep kids away from them. deposits. you know teaches them a lot of for a responsibility and simply come to pay through the eyes of children if we can't do it for our children for our future. we will move.

ukraine's president condemns what he calls a coup in kiev and defies calls to step down he's now in the east of the country where local authorities say they're taking full control of the regions. and in the capital the now opposition led parliament votes to impeach the president while the prime minister yulia timoshenko is free from jail arrives in kiev and val's to run for office. and the european media that helped broker a crisis deal for ukraine say they will support the new government one of meting the opposition has violated the agreement.