Lombard Odier: Russia may be past its worst but recovery would still be hard

By Andrei Skvarsky.

According to analysts at Swiss bank Lombard Odier, the Russian economy is likely to be past its worst but remains beset by problems too serious to make smooth recovery possible.

The 220-year-old private bank sees the low oil prices and the consequent rapid depreciation of the ruble as the main causes of Russia’s economic woes.

Lombard Odier strategist Stephanie de Torquat argued in an emailed interview with EmergingMarkets.me that oil prices would be the “absolute determinant” for Russia in 2016.

In an investment bulletin, the Geneva-based firm said, citing the US Energy Information Administration, that oil prices are likely to stabilise in the range of between $50 and $70 per barrel next year.

Lombard Odier also expressed a surmise that the ruble has bottomed out.

This would put an end to what is describes as a vicious circle where a weakening ruble has been fuelling inflation, driving interest rates upwards and slowing down growth, and as a result has itself been getting even weaker.

Yet the overall picture is mixed, the bank said.

The positives include low public debt levels, large international reserves and a positive current account balance, Lombard Odier said.

Among the negatives are a large external debt, an increasing budget deficit and capital outflow, it said. Moreover, the Western anti-Russian sanctions are, to quote De Torquat, “a headwind to lending, investment and consumption”.

Investment and productivity prospects “remain bleak”, Lombard Odier said. “They have been declining for some five years.”

Obstacles to recovery include “Russian businesses’ lack of confidence in future economic perspectives and numerous geopolitical uncertainties, the latest being the Syrian conflict”, the firm said.

It mentioned that Russia is 62nd in the World Bank’s “ease of doing business” ranking for 2014, and 136th out of the 175 countries in Transparency International’s 2014 corruption perceptions index.

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