World Economy

Warning to Russia: Crisis Could Get Worse

Warning to Russia: Crisis Could Get WorseWarning to Russia: Crisis Could Get Worse

Morgan Stanley has a warning for Russia: Don’t expect things to get better anytime soon.

The world’s largest country (geographically speaking) has been mired in a financial crisis since oil prices started to crash in mid-2014, and according to Morgan Stanley economist Alina Slyusarchuk that crisis has some way to run yet, Business Insider reported.

In the bank’s latest chartbook on the country’s economic situation, Slyusarchuk predicts that Russia will stay deep in recession this year, the federal deficit will widen, and the current account surplus will continue to decrease.

When Russia entered its current financial crisis in 2014, many analysts predicted that the crisis would follow a similar pattern to the one witnessed in 2009, when the country’s economy recovered strongly in a V-shaped rebound (when mapped on a chart, the size of the economy drew a V shape). But that recovery hasn’t materialized, and a prediction Morgan Stanley made in January 2015 has now come true.

“Looking ahead, barring a strong rebound in oil prices or the lifting of sanctions, we see the recession lasting much longer through 2016, unlike the V-Shaped rebound in 2009, particularly given the rising risk of further sanctions,” Slyusarchuk wrote in a note soon after Russia’s financial crisis started.

 Much More Vulnerable

Morgan Stanley expects the vulnerability of the Russian economy to increase in 2016. The Morgan Stanley Vulnerability Scoring Index, which tracks how resilient countries are to economic shocks, shows that since 2014, Russia has become far more vulnerable.

Slyusarchuk said: Given the renewed and now protracted oil weakness, we expect further moderate deterioration in the VSI indicator. We expect growth to stay in negative territory at— 1%Y in 2016, the federal deficit to widen to 4.2% of GDP and the current account surplus to narrow from 5.6% of GDP in 2015 to 3.8% in 2016.

Russia’s economic performance continues to rely heavily on oil. As the third-largest oil producer—behind only the US and Saudi Arabia—Russia sees its financial performance inextricably linked to moves in the price of crude.

For instance, when oil-producing nations failed to agree a deal to freeze production in April at their much-anticipated meeting in Qatar, Russia’s markets took a beating. The day after the meeting, both the ruble and the country’s stock market crashed as a result of a slump in oil prices.

As the oil markets start to rebalance, however, things could get marginally better for Russia if the price of oil rises.