Putin needs to look beyond the rouble

The currency’s rebound could focus attention away from the Russian economy’s serious structural problems.

Over the course of the winter a combination of rapidly falling oil prices, heightened geopolitical uncertainty, and enormous private capital outflows contrived to create a palpable sense of panic in the Russian economy. A rebound for the rouble has now given Russia some respite and contributed to a more optimistic economic outlook, but it has also diverted attention away from the need to address the growing list of serious problems that face the country. These have not disappeared, whatever the rouble says.

When the rouble plunged and unemployment began to rise, the Russian government was forced to hastily cobble together an anti-crisis plan to restore economic confidence. Spring has now brought with it a renewed sense of calm. Since the end of January, oil prices stabilized, then rose slightly to their current levels. The Minsk II agreement, while fragile and only partially observed, at least appears to be preventing the conflict in southeast Ukraine from escalating any further. Capital outflows, which reached $77 billion in the final quarter of 2014, slowed down to $32bn in the first quarter of 2015. Perhaps most notably, the rouble has reversed its downward trajectory to become one of the best performing emerging market currencies in 2015.

Such is the apparent turnaround in fortunes for the Russian economy that the Russian President, Vladimir Putin, was emboldened to declare in his recent televised Q&A session that the economic crisis had been averted, and that the ‘peak of Russia’s problems’ were now behind them.

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