BREAKINGVIEWS-Russian economy scorched by wildfires

Wed Aug 11, 2010 11:47am BST

-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --



By Pierre Briançon

PARIS, Aug 11 (Reuters Breakingviews) - Vladimir Putin took to the air this week, sitting in the co-pilot's seat of a water-bombing plane in an effort to fight the fires that are engulfing whole regions of Russia. But this is unlikely to do much to lift the Russian prime minister's popularity. As life in the country's largest cities, including Moscow, has become unbearable, Russians must now brace for the severe consequences the summer inferno will have on the economy.

Forget for a moment that stock and bond trading is down sharply in the last two weeks simply because bankers have stayed home or fled the city. The heatwave and fires have already ravaged crops throughout the country. This will severely impact export revenues, with the added irony that Russia can't even take advantage of rocketing wheat prices since it has banned exports in order to serve its domestic needs. Furthermore, the near-paralysis of whole regions will lower industrial output. This could add up to an impact of 1 percent on this year's GDP, according to HSBC.

The Russian economy had been expected to grow by 5 to 6 percent this year following the severe slump of 2009, when it shrunk by 8 percent. The fires will postpone its return to pre-crisis levels. Meanwhile inflation, already at around 7 percent, will be fuelled by rising food prices, and possibly by the government's temptation to throw money at the new problems caused by the flames.

Moreover, Russia can't count on the oil price for help. The country's main export remains stuck at around $80 a barrel, and with mixed signals coming from the U.S. and Chinese economies, is not expected to rise in the short term.

At some point, foreign investors may take fright. The government's inability to mount a swift response to the ever-expanding fires has highlighted the flaws in its over-centralized, inefficient and corrupt state apparatus. That problem will remain even after the fires have been doused.

CONTEXT NEWS

-- A top Russian weather official said that scorching heat will keep plaguing Russia for at least another 10 days, as the country's authorities prepared to import essential grain and food staples to make up for crop shortages.

-- Some economists have warned that the heatwave and the wildfires that have been engulfing whole regions of central Russia could wipe some $15 billion, or about 1 percent, off the country's gross domestic product.

Reuters TAKE A LOOK-Human cost of Russia's heatwave [ID:nLDE67511Z]

-- Reuters story: Historic heat to dent Russian growth, fires rage [ID:nLDE6791GV]

-- For previous columns by the author, Reuters customers can click on [BRIANCON/]

(Editing by Peter Thal Larsen and David Evans)

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