Russian businesses expect massive bankruptcies, layoffs, law enforcement interventions – expert

16:20, 14 April 2020
World
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REUTERS

Ex-employee of the Russian Presidential Administration, economist Dmitry Nekrasov has said Russia's small and medium-sized businesses will start going bankrupt during quarantine over the lack of government support, while the sector as a whole will face layoffs and meddling on the part of law enforcement in the redistribution of the market.

"Two different shockers are affecting the Russian economy – this is the pandemic itself and the quarantine measures associated with it, as well as the fall in oil prices. The drop in oil prices is a well-studied shocker for Russia, so the country has been preparing for it for some time. It is clear that in the context of plunging oil prices, budget revenues will sharply decrease, it is clear that the drop in oil prices alone, without any pandemic, is able to bring down GDP growth to negative digits, which affects the ruble exchange rate. However, in general, the Russian economy has never been so ready for a fall in oil prices as it is now. Huge reserves have been accumulated. The Central Bank's reserves exceeded US$580 billion, while the National Welfare Fund's reserves exceeded US$100 billion, respectively. But to purely tackle a fall in oil prices, even by the most radical scenario, the Russian government had enough reserves for one or two years, or for three to four years on average. But it's clear this is not good for the economy," he told Guildhall.

"As for the coronavirus shocker, it's too early to talk about its ultimate consequences since we don't realize its ultimate scale. In fact, quarantine measures have just been introduced in the Russian Federation, and the epidemic is only gaining momentum, so we can only imagine how widespread losses will be," Nekrasov said.

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"The Russian government, unlike most European ones, did not support businesses, did not compensate for the loss of jobs, in fact, only announcing a month-off. And this means that businesses are paying salaries at their own expense now. It is clear that this measure cannot be permanent, because businesses will physically go bankrupt and fire everyone. It is unclear how people will survive during this month-off, which has been announced. I am sure that even in the current situation, many businesses will go bankrupt and without any doubt there will be a surge and there will be losses to small and medium-sized businesses. It is too early to assess the scale of these losses, they will definitely take place, even if everything returns to norm and the lockdown ends by late May, we will definitely see some reduction in GDP," he said.

"Compared with the developed European economies, especially with Italy, where small and medium-sized businesses are very developed, it will be difficult for a part of the Russian economy that lives in competitive conditions. I think we will see both massive bankruptcies and massive reductions in this sector. The government will be seizing more control. And in Russian conditions, any emergency leads to the fact that law enforcement start taking part in the redistribution of the market and seizing control over some players," the analyst added.

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