Russia spirals into crisis

The Russian ruble has stabilised in recent days, but only after the central bank introduced a raft of measures to limit ruble liquidity – including a massive hike in interest rates – and, perhaps more importantly, oil prices started to edge up. The effects of the collapse in the currency on the real economy will be felt in the first half of 2015. Inflation looks set to jump, perhaps to 20%, and real incomes will contract. Meanwhile, although the ruble has stabilised over the past few days, interbank interest rates have spiked to levels that have typically preceded a credit crunch in the wider economy. All told, we think that GDP will shrink by 5% next year. The rest of the region will suffer a hit to exports, but the fallout should prove manageable.