Russian Economy; Putn's war with Ukraine a disaster for Russia's value of the ruble.

The Russian currency has broken another threshold in its decline in value. Over the weekend, 1 ruble was worth only 1 US cent. This means 100 rubles had to be paid for $1 US. The ruble also continued to lose value against the euro, with €1 at times costing nearly 110 rubles.

The ruble fell to its lowest point since March 2022 when the currency crashed following Russia's invasion of Ukraine. In the following few months, the currency regained the lost ground as Russia benefited from significantly higher energy prices. However, over the past year, the ruble has steadily declined.

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Russia:The Ruble Crash And Putin's Choices - by Armin Rosen

Russian Ruble Free fall

This week's plunge in the value of the ruble adds another layer of uncertainty to the ongoing faceoff between Russia and the West.

The currency crisis, precipitated by US and EU sanctions against Moscow and a global decline in oil prices, threatens to crater the country's lucrative state-owned enterprises and send the economy into a nosedive.

The question is how an ever-unpredictable Vladimir Putin will respond.

Putin's nationalistic and often-aggressive policies have appealed to Russians' post-Cold War sense of grievance and won him soaring approval ratings at a time when the Russian president is loathed in most western capitals.

But the ruble dive threatens to radically shift the conditions that have allowed Putin to maintain his internal popularity in spite of the western powers' opposition to him.

As New York University professor and Russia expert Mark Galeotti explained to Business Insider, Putin's rule is predicated on a "social contract" that most Russians have found acceptable: "You stay out of politics.

You show enthusiasm but don't think you actually get a meaningful say in government. In return for that your life will improve and continue to improve."

Under Putin, Russia achieved perhaps the highest standard of living in the country's history while the government was able to replenish its coffers after periods of actual bankruptcy under Boris Yeltsin in the 1990s. Weaknesses remained:

The new prosperity was largely distributed through Putin's hand-picked former KGB colleagues and much of the country's wealth depended upon robust oil prices and access to European markets. Record military spending also threatens to sap resources and hamstring any government response to a future economic crisis.

The recent decline in oil prices, along with the economic consequences of international sanctions, could bring Putin's arrangement crashing down around him. "This social contract is being torn up," says Galeotti. "But Putin could tear it up more quickly and more assiduously if he's still determined to maintain his aggressive geopolitical stance. It really is one of those guns or butter moments."

Read more: http://www.businessinsider.com/the-ruble-crash-and-putins-choices-2014-12#ixzz3M7ha13MR

Read more: The Ruble Crash And Putin's Choices - Business Insider

Russia:Central Bank Downgrades Medium-Term Economic Growth Forecast

TheRussian Central  Bank predicted growth of 1.5 to 1.8 percent this year, down from a forecast of 2 percent made last quarter.

Central Bank governor Elvira Nabiullina said last week that the bank had revised down its forecast because it was surprised by last year's poor growth rate of 1.3 percent.

In its report, the Central Bank said it expected annual growth in household consumption to fall to 3.1 to 3.3 percent in 2014 from 4.7 percent in 2013. Fixed-investment growth was forecast at 1.4 to 1.6 percent in 2014, up from 0.3 percent in 2013.

The Central Bank said the slight improvement in growth expected over the next two years was "in line with the revival of the global economy and thanks to a gradual improvement in the investment climate and the mood of economic agents in Russia." It still expects output to remain slightly below its potential.

The bank said the Sochi Winter Olympics should boost growth in the first half of 2014, which it estimated at 0.3 percentage points.

But the Central Bank warned that the price of oil, Russia's major export, could fall in the short term because of weakening business activity in China and increased deliveries from Iran and Libya.

The bank said the ruble's weakening at the end of 2013 and the beginning of 2014 could add 0.3 to 0.5 percentage points to the inflation rate, but it predicted that the effect would be offset by weak demand.

It maintained its forecast that the annual increase in consumer prices would fall to 5 percent this year, 4.5 percent in 2015 and 4 percent in 2016. Weak economic activity and reduced inflationary expectations would lower the inflation rate, it said.

But the bank warned that a weaker ruble implied long-term risks to the economy.

Read more: Central Bank Downgrades Medium-Term Economic Growth Forecast | Business | The Moscow Times