Business

SEATTLE/WASHINGTON — The United States on Wednesday stepped up calls on European policy makers to do more to avoid a "lost decade" of low growth, saying steps taken by the European Central Bank (ECB) may not be sufficient on their own.

US Treasury Secretary Jack Lew gave an unusually blunt assessment of what he thinks Europe needs to do, arguing that France and Italy should rein in budget deficits more slowly and that it was "critical" Germany and the Netherlands open their fiscal purse strings.

"Resolute action by national authorities and other European bodies is needed to reduce the risk that the region could fall into a deeper slump," Lew said at the World Affairs Council in Seattle.

Speaking ahead of the summit of leaders from the Group of 20 (G-20) nations in Australia this week, he said eurozone countries should pursue a combination of fiscal, monetary and structural policies to support growth.

His comments suggested the eurozone's sluggish recovery will come under the G-20 spotlight, as it has during their last two sessions.

The 18-nation
eurozone is skirting close to recession, growing just 0.1 per cent in the second quarter, and the currency bloc is also not far from outright deflation.

To prop up the economy and move inflation higher, the ECB has started to pump more money into the region's banking system, and has said it is ready to take further action if needed.

In contrast, the US economy is growing solidly. Lew warned, however, that the world could not rely on strong US growth alone to support demand. He urged countries to use fiscal policies to boost demand if they could afford to.

Germany, Europe's biggest economy, has been under particular pressure to increase government stimulus to support demand in the eurozone.

Lew also said Italy and France should pursue structural reforms but cautioned it was still unclear whether such reforms will be enough in the case of Japan.

Japan has launched a broad programme of monetary easing, spending and reform to generate economic growth and pull out of damaging deflation. At the same time, Tokyo has raised taxes in a bid to rein in its large deficits.

Lew said that if Japanese officials decided to go ahead with another planned consumption tax increase, they should use other policies to more than offset the drag on the economy.

He held out the US recovery from the 2008-2009 Great Recession as an example for Washington's main G-20 partners.

"Over the past four and a half years, the private sector has created more than ten and a half million new jobs, the longest stretch of private sector job growth in our nation's history," he said.

"In fact, we have created more jobs since the pre-crisis peak than Europe and Japan combined," the treasury secretary added.

But he also said that the United States itself needs to do more to strengthen economic momentum, citing President Barack Obama's proposals for immigration and tax reforms, a higher minimum wage, and more spending on infrastructure.

Separately, the International Monetary Fund (IMF) on Wednesday warned of downside risks to its growth projections for the eurozone, and urged the ECB to act if prices in the currency bloc continue to drift lower.

The IMF's warning echoes an increasing fear among global policy makers that Europe is not on track to spur economic growth, something that should be a key topic for discussion when leaders of the G-20 economies meet in Australia.

The IMF, the Washington-based lending institution charged with policing global economic and financial stability, in October predicted the eurozone would expand 0.8 per cent this year and 1.3 per cent next year.

But a raft of disappointing data in the last month has put even those modest economic projections in doubt, including "surprisingly" weak data for domestic demand in Germany, the eurozone's biggest economy, the IMF said in a report prepared for the G-20 meeting.

A report on Friday is expected to show the eurozone's economic growth in the third quarter is in line with the 0.1 per cent pick-up posted in the prior three months. Prices have risen just 0.4 per cent over the past year.

The ECB has a mandate to keep inflation below but close to 2 per cent.

The IMF said it welcomed recent moves by the ECB to keep interest rates low and pump more money into the region's banking system.

"But if the inflation outlook does not improve and inflation expectations continue to drift down, the ECB should be willing to do more, including purchases of sovereign assets," the IMF said in its report.

It also warned of the risks tied to geopolitical tensions in Ukraine and the Middle East, and of financial market corrections due to divergent policies from the world's major central banks.

The US Federal Reserve last month decided to end its bond-buying stimulus programme, while the Bank of Japan has dramatically increased its pace of money creation and the ECB agonises over whether to follow suit.

A deep stock market sell-off in mid-October also spooked policymakers concerned that a market rout could hurt confidence.

"The recent increase in volatility is a reminder about the challenges ahead," the IMF said.

BAGHDAD/ERBIL — The government of Iraq and the semi-autonomous region of Kurdistan have reached a deal to ease tensions over Kurdish oil exports and civil service payments from Baghdad, Iraq's finance minister told Reuters on Thursday.

Hoshiyar Zebari said the central government had agreed to resume payments from the federal budget for Kurdish civil servants' salaries.

Zebari, who is a Kurd, described the step as a "major breakthrough" that would reduce friction between the Kurdistan Regional Government (KRG) and Baghdad.

The deal was reached after talks between Iraqi Oil Minister Adel Abdul Mehdi and Kurdish Prime Minister Nechirvan Barzani in the Kurdistan region on Thursday.

Baghdad stopped paying for KRG civil servant salaries in protest against the Kurds' exporting oil to Turkey independently.

Under the agreement, Iraqi Kurdistan will give 150,000 barrels per day of oil exports — equal to around half its overall shipments — to the federal budget.

In Erbil, the KRG confirmed the agreement.

"What they have agreed is that Baghdad will release some funds — $500 million — and the KRG will give 150,000 barrels per day of oil to Baghdad," KRG spokesman Safeen Dizayee told Reuters.

Exports still under control of Kurds 

He said a KRG delegation headed by the prime minister would travel to Baghdad soon to hammer out a more comprehensive deal and the regional government would not hand over control of exports to Baghdad.

A similar agreement was proposed in April but never advanced to a deal.

In July, then Iraqi foreign minister Zebari said the Kurdish political bloc withdrew from the national government in protest against Prime Minister Nouri Al Maliki's accusation that Kurds were harbouring Islamist insurgents in their capital.

The Kurds later rejoined the administration. But tensions persisted.

Maliki, one of the most divisive figures to emerge from the US occupation of Iraq, was later replaced by Haider Al Abadi.

He is seen as a moderate Shiite capable of cooperating with Sunni Muslims, Kurds and other sects.

Iraqi leaders are under pressure to bury differences in order to counter Islamic State militants who have seized chunks of the country in the north and west.

There are about 5 million Kurds in majority Arab Iraq, which has a population of more than 30 million. Most live in the north, where they run their own affairs, but remain reliant on Baghdad for a share of the national budget.

LONDON/ZURICH/NEW YORK — Regulators fined six major banks including Citigroup and UBS a total of $4.3 billion for failing to stop traders from trying to manipulate the foreign exchange market, following a year-long global investigation.

HSBC, Royal Bank of Scotland (RBS), JP Morgan  and Bank of America also face penalties resulting from the inquiry that has put the largely unregulated $5 trillion-a-day market on a tighter leash, accelerated the push to automate trading and ensnared the Bank of England.

In the latest scandal to hit the financial services industry, dealers shared confidential information about client orders and coordinated trades to make money from a foreign exchange benchmark used by asset managers and corporate treasurers to value their holdings. Dozens of traders have been fired or suspended.

Dealers used code names to identify clients without naming them and created online chatrooms with pseudonyms such as "the players", "the 3 musketeers" and "1 team, 1 dream" in which to swap information. Those not involved were belittled and traders used obscene language to congratulate themselves on quick profits made from their scams.

Britain's Financial Conduct Authority (FCA) fined five lenders $1.77 billion, the biggest penalty in the history of the City of London, and the US Commodity Futures Trading Commission (CFTC) ordered them to pay a further $1.48 billion.

"Today's record fines mark the gravity of the failings we found and firms need to take responsibility for putting it right," FCA Chief Executive Martin Wheatley said.

"Banks had to understand that responsibility for good business practice went beyond their compliance departments, which are tasked with ensuring internal and external rules are followed.," said Wheatley.

"They must make sure their traders do not game the system to boost profits or leave the ethics of their conduct to compliance to worry about," he added.

The US Office of the Comptroller of the Currency, which regulates banks, also fined the US lenders $950 million and was the only authority to penalise Bank of America.

Switzerland's regulator FINMA ordered UBS, the country's biggest bank, to pay 134 million francs ($139 million) after it found serious misconduct in both foreign exchange and precious metals trading. It also capped bonuses for dealers in both units at twice their basic salary for two years.

FINMA will appoint a third party to monitor the bank's observance of its rules after discovering it had received whistleblower reports about alleged trader misconduct in 2010 but failed to investigate them properly.

Despite Wednesday's payout, which brings the total fine for benchmark manipulation to over $10 billion in two years, banks  still face further penalties as the US Department of Justice, the Federal Reserve and New York's financial regulator conclude their own investigations.

US authorities have tended to be more aggressive than their European counterparts in punishing big banks for misconduct. 

"We made the judgement that while more information is always better, we didn't believe that the picture would materially change even if we spent additional years continuing to investigate," said Aitan Goelman, director of enforcement at the CFTC.

Britain's Serious Fraud Office is also conducting a criminal investigation and there is the threat of civil litigation from disgruntled customers.

Exasperation

Reflecting exasperation that banks failed to monitor their trading desks adequately despite promises to overhaul their culture and controls, the British FCA launched a review of the spot foreign exchange industry that may spread to other markets such as derivatives and precious metals.

The misconduct at the banks ran from 2008 until October 2013, over a year after US and British authorities started punishing banks for rigging the London Inter-Bank Offered Rate (LIBOR), an interest rate benchmark.

RBS, which is 80 per cent owned by the British government, received client complaints about foreign exchange trading as far back as 2010. The bank said it regretted not responding more quickly to the complaints.

The other banks were similarly apologetic.

Barclays was not part of Wednesday's settlement after pulling out of talks with the FCA and the CFTC to try to seek "a more general coordinated settlement" with regulators.

The FCA said that the five other banks had been given a 30 per cent discount on their fines for settling early and that its enforcement activities were focused on those five plus Barclays, signalling that Deutsche Bank would not face a fine from it.

The CFTC declined to comment on whether the agency was looking at other banks.

Bank of England

The currency inquiry struck at the heart of the British establishment and the City of London, the global hub for foreign exchange dealing.

The Bank of England (BoE) said on Wednesday that its chief foreign exchange dealer, Martin Mallet, had not alerted his bosses that traders were sharing information.

The British central bank, whose Governor Mark Carney is leading global regulatory efforts to reform financial benchmarks, has dismissed Mallet but said he had not done anything illegal or improper.

It also said it had scrapped regular meetings with London-based chief currency dealers, a sign the BoE wants to put a distance between it and the banks after the scandal.

The investigation has provoked major changes to the foreign exchange market with a clamp down on chatrooms, the suspension or firing of more than 30 traders, an increase in automated trading and new regulatory changes to benchmarks which world leaders are expected to sign off on at the Group of 20 summit in Brisbane this weekend.

AMMAN — Jordan's inflation rate increased by 3 per cent by the end of October compared with the same period of last year, according to the Department of Statistics (DoS) report. The rise was attributed to higher rents, besides an increase in the prices of tobacco, cigarettes, clothes, footwear, education and transport. This was coupled with a decrease in the prices of vegetables, hygienic products, fat and oil as well as telecommunications.  

AMMAN —  The US Agency for International Development said in a press statement on Wednesday that US Ambassador Alice G. Wells attended the opening of the Middle East and North Africa Information and Communications Technology Forum (MENA ICT) on Wednesday to underscore the US government’s commitment to Jordan’s growing ICT sector. The ambassador toured the forum at King Hussein Business Park to get acquainted with  national, regional and international opportunities in the sector from Jordanian ICT leaders. Also on Wednesday, Jordan Commerce Chamber (JCC) board members met with Wells and discussed means to boost economic cooperation and strengthen the partnership between the private sectors of the two countries. At the meeting, JCC Chairman Nael Kabariti highlighted the strong historic relations between the two countries and called on the US to increase its investments in the Kingdom, especially in the area of small- and medium-sized enterprises, in particular. 

PARIS — With fossil fuels set to meet most of the increased global demand for energy, the International Energy Agency (IEA) warned Wednesday that climate change targets are at risk and conflicts could still wreak havoc with supplies.

"The global energy system is in danger of falling short of the hopes and expectations placed upon it," the IEA said in its World Energy Outlook 2014 report.

The Paris-based body, which advises industrial oil consuming nations, forecasted global energy demand will grow 37 per cent by 2040, with fossil fuels key to meeting that increased demand despite concerns about global warming.

It warned global energy security is at risk in the oil market as "reliance grows on a relatively small number of producers".

It noted that the Middle East "remains the only large source of low-cost oil", but conflict in the region "has rarely been greater since the oil shocks in the 1970s" that left consuming countries desperately short of fuel supplies. 

While oil prices are currently at four-year lows, it sees them rising as demand increases from 90 million barrels per day (mbpd) in 2013 to 104 mbpd in 2040.

It said that higher prices and new policies will gradually constrain the pace of their consumption and reduce their weight in overall energy use.

That view is shared by top oil producers.

Last week, the Organisation of the Petroleum Exporting Countries (OPEC) predicted that fossil fuels, oil, gas, coal, will still "play the leading role in satisfying world energy needs" but will dip from 81.6 per cent to 78.4 per cent of total energy consumption. 

The IEA sees the fastest rate of growth among fossil fuels for natural gas, where demand should increase by more than half, becoming the leading fuel in the OECD (Organisation for Economic Cooperation and Development) energy mix by 2030.

The dispute between Russia and Ukraine over a separatist insurgency in the east of the ex-Soviet country has reignited concerns about gas security, especially for European markets.

The IEA noted those fears but said they were partly allayed by a growing number of suppliers, and that the alternative of "liquefied natural gas (LNG) offers some protection against the risk of supply disruptions".

Call for safer energy 

As for coal, while the supply is abundant and secure, "its future use is constrained by measures to tackle pollution and reduce carbon dioxide emissions," it said.

While the share of fossil fuels in energy consumption will drop to just under three quarters by 2040, their impact on global warming and climate change is undiminished.

The IEA called for urgent action as it estimates the world is currently set to emit by 2040 the amount of carbon dioxide that would bust the international goal of limiting the global temperature increase to 2 degrees Centigrade.

"It is clear that the 2 degrees Centigrade objective requires urgent action to steer the energy system on a safer path," said the IEA, which plans to issue a special report in advance of a crucial UN climate summit in Paris next year.

While a major alternative to fossil fuels, the IEA sees an uncertain future for nuclear power as Japan and a number of European countries reduce or phase it out over safety concerns.

Global nuclear capacity will nevertheless increase by almost 60 per cent, with China alone accounting for 45 per cent of the growth.

But this will only increase its share in the energy mix by one point to 12 per cent, still below its peak two decades ago.

It pointed to renewable energy technologies to help fill the shortfall in power generation as they are gaining ground, helped by global subsidies amounting to $120 billion in 2013.

The share of renewables, wind, solar, hydropower, biofuels, increases most in the OECD major industrialised nations, reaching 37 per cent of power generation, the IEA concluded.

LONDON — Leading world economies are spending $88 billion (71 billion euros) a year in fossil fuel exploration subsidies, sapping investment from low-carbon alternatives and increasing the risk of “dangerous climate change”, according to a report.

The report by Britain’s Overseas Development Institute think tank said that these subsidies “could drive the planet far beyond the internationally agreed target of limiting global temperature increases to no more than two degrees Celsius”.

The report was published in conjunction with Oil Change International, a US advocacy group, and comes ahead of a meeting of Group of 20 (G-20) leaders this weekend in Brisbane, Australia.

Britain, Russia, the United States and Australia had some of the highest national subsidies, indicated the report, which pointed in particular to Washington providing $5.1 billion to fossil fuel industries last year — almost double the level in 2009.

The report also pointed to investments made by state-owned companies as a form of subsidy particularly prevalent in Brazil, China, India, Mexico, Russia and Saudi Arabia.

“Levels of support range from $2-$5 billion in Russia, Mexico and India, to $9 billion in China, $11 billion in Brazil and $17 billion in Saudi Arabia,” it pointed out.

It identified public finance as a third form of subsidy for supporting fossil fuel exploration, highlighting its use in Canada, China, Japan, Russia and South Korea.

The report said the funds were “uneconomic investments” and “a publicly financed bailout for carbon-intensive companies” at the expense of wind, solar and hydro-power.

“Without government support for exploration and wider fossil fuel subsidies, large swathes of today’s fossil fuel development would be unprofitable,” the report added.

It gave as an example the Prirazlomnoye project, Russia’s first Arctic offshore site, saying that “even with extensive tax breaks and public investment in infrastructure, the project is of dubious commercial viability”.

“Two-thirds of the reported internal rate of return of 14 per cent can be traced to tax breaks,” it said.

It also pointed to “a large gap between G-20 commitment and action” since the G-20 powers had agreed five years ago to phase out “inefficient” fossil fuel subsidies.

The authors called on governments to “act immediately” to phase out subsidies and said that carbon should be priced “to reflect the social, economic and environmental damage associated with climate change”.

The report said fossil fuel exploration subsidies were only part of the picture with global subsidies for the production and use of fossil fuels adding up to $775 billion in 2012 compared to $101 billion for renewable energy spent in 2013.

CAIRO — Representatives from over 60 US companies wrapped up Tuesday a two-day visit to Egypt described as the largest such delegation in history that aimed to explore potential businesses to boost the country’s ailing economy. But critics say the visit strikes the wrong tone amid a government crackdown on freedoms.

Delegates to the conference, organised by the US Chamber of Commerce, stayed clear of politics. During a two-hour meeting with President Abdel Fattah Al Sisi, they listened to his vision for improving the economy and the pressures he faces from a disgruntled and demanding population.

The delegation included a personal envoy from US Secretary of State John Kerry, Ambassador David Thorne. Ahead of the visit, Kerry said a critical component of Egypt’s success is economic growth driven by policy reform, a message the delegation will deliver to Egyptian authorities.

The visit coincided with an ultimatum by authorities given to civil groups to register under a restrictive law that was drafted under the regime of Hosni Mubarak, or face shutdown and prosecution.

The deadline passed with authorities taking no immediate action. The groups say the deadline still hangs over their head, and is a threat to their work which deals mostly with government violations and crackdown.

“Egypt is suffering the most ruthless crackdown in decades but John Kerry is busy promoting US business there,” Kenneth Roth, executive director of the New-York based Human Rights Watch, wrote on Twitter ahead of the visit. His organisation closed its offices in Cairo earlier this year, citing concerns over the crackdown, after failing to register.

Egyptian authorities have also rounded up thousands of protesters and supporters of Islamist President Mohamed Morsi, who was ousted last year by the military led by Sisi, after popular protests accusing him of monopolising power.

“We all recognise that this country has been through turmoil and we recognise that the economy is challenged,” said Gregori Lebedev, a senior member of the board of the directors of the Chamber of Commerce and co-leader of the delegation. 

“I think the size of the delegation reflects the fact there was a prospect of change and reform and let’s go see for ourselves what those prospects are because we would like to be a part of that solution if we can and we certainly want to be part of [Egypt’s] long term growth.”

Lebedev and others in the conference rebuffed the criticism. “We know that prosperous economies are good for citizens wherever you are in the world,” Lebedev told The Associated Press. “So anything that the American business community can do to stimulate a challenged economy will do nothing but benefit Egyptian citizens at large.”

During the delegation’s meeting with Sisi Monday, Lebedev said it was clear that the new government is not “whitewashing” the country’s myriad problems, commending the new energy he said characterised the economic team picked by the president.

“I think people have to give some amount of credit for an otherwise successful individual [Al Sisi] to take on challenges that most people would turn away from,” he said.

Khush Choksy, vice president of the US chamber of commerce for Middle East affairs, said the timing of the visit couldn’t have been better to seize on positive signals the government has sent to the business community.

“Business likes to get in the act early,” he said, adding that visit hopes to boost American investment in Egypt, which now stands at over $10 billion, at a time when its government took drastic and much awaited economic reforms such as cutting fuel subsidies.

Sisi has also launched a number of mega-projects aimed at jumpstarting the economy and providing employment. 

Such projects, as well as Egyptian interest in investing in them, Choksy said, have triggered interests of private American businesses.  

He added that the chamber plans to host another regional investment conference in Egypt next spring.

For Egyptian businessmen, the conference is an opportunity to commit the government to a more business friendly environment.

“One of the recommendations [to the government] will be to be very transparent, to be very candid about what laws are going to be changed and to be candid that nothing will be taken retroactive on any of the decisions taken by the government,” Hisham Fahmy, head of the American Chamber of Commerce in Egypt, told AP.

MOSCOW — Many Russians are buying dollars and hoarding cash, increasingly concerned by a slide in the ruble and wary of possible restrictions on bank withdrawals as President Vladimir Putin blames currency woes on speculators and the West.

While there is little panic on the streets of Moscow and other major cities, some Russians are taking no chances with their money, with many hardened by a financial crisis in 1998 which wiped out the savings of millions of people.

The ruble has fallen more than 25 per cent against the dollar in 2014, with especially heavy losses in the past month when the currency repeatedly hit all-time lows despite the central bank spending around $30 billion to defend the currency.

Financial officials and the Kremlin have united in calling for calm, suggesting that speculators were to blame for the falling ruble, rather than tumbling oil prices or Western sanctions that have weakened the economy.

Putin has hinted that the global oil price has been deliberately manipulated to hurt Russia.

Russian search engine Yandex said queries such as "what to do with rubles in 2015?" hit a record high of over 1.2 million on one day last week.

Viktoria Openko, deputy head of currency conversion operations at mid-sized Russian lender B&N Bank, indicated that demand for dollars had risen more than four times in Moscow from October 9 compared with the preceding two months and the bank had to increase the number of times it restocked its branches.

"We first noticed increased demand in Moscow on October 8-9, when the dollar repeatedly started to trade above 40 rubles," she said. "In the regions, the rise in demand started later, from October 13, and on a lesser scale."

Representatives from VTB 24, the retail-banking arm of Russia's second-largest lender VTB, and Rosbank, part of Societe Generale Group, have seen a similar increase in foreign exchange demand.

Another mid-sized Russian lender, Soyuz, revealed selling 2.3 million in dollars to customers in October, compared with $890,000 in September.

Flight to safety

So far there are few signs large banks are running short of dollars, but media have reported foreign currency shortages at smaller lenders in the past week.

Four large banks were able to sell up to $10,000 to a Reuters reporter on Friday, while an office of sanctioned SMP Bank had large amounts of dollars but had run out of euros.

According to an employee who did not wish to be named at a currency exchange booth in Moscow, customer behaviour had changed.

"We have the same customers ringing up in the morning to check the rate. People are worried," the employee said.

Bella Zlatkis, deputy chief executive of top lender Sberbank , said late last month that demand for safety deposit boxes was the most noticeable change in customer behaviour.

"We can't buy safes quickly enough, the largest demand we have is for safes. I understand when people want to put dollars in safes, but at the moment there is another trend, to take out rubles and put them in a safe," Zlatkis indicated.

She suggested demand for safes was linked to fears that authorities could restrict bank withdrawals. "The No. 1 motivation is to save so they can't take it from you."

On Monday, the ruble firmed sharply after Putin said he hoped speculative trading on the ruble would stop soon.

By mid-afternoon it was trading more than 2 per cent higher than the previous close after the central bank said it could intervene at any time to punish speculators after letting the currency float freely.

"That Russian officials from the president down are trying to talk up the ruble speaks volumes about the extent of the deterioration in sentiment towards the currency," said Nicholas Spiro, managing director of Spiro Sovereign Strategy.

"While there has been no widespread dollarisation of retail deposits, this is now a much bigger risk than it was as recently as a couple of weeks ago," Spiro added. "Today's recovery in the ruble looks and feels like a temporary respite."

The central bank predicted Monday that Russia faces the prospect of three years of economic stagnation, underscoring the heavy costs of Putin's Ukraine policies and of Russia's dependence on fragile oil prices.

In an annual monetary policy strategy document, the bank slashed its economic growth forecasts in 2014-16 to almost zero, anticipating that Western sanctions imposed over Russia's actions in Ukraine would last at least until the end of 2017.

It also raised its forecasts for net capital outflows to $128 billion in 2014 and $99 billion in 2015.

Separately, it said it was scrapping the ruble's corridor against a dollar-euro basket, a decision presaged by the bank's announcement last Wednesday that it would limit intervention.

The bank's view on sanctions, the first official assessment of how long they may last, tallied with that expressed by influential former finance minister Alexei Kudrin in September.

It base scenario expected just 0.3 per cent economic growth in 2014, zero growth in 2015, and 0.1 per cent growth in 2016. The economy was only expected to revive modestly in 2017, when the bank expected growth to reach 1.6 per cent.

Its forecast assumed a modest recovery in the oil price to $95 per barrel next year, followed by a further decline.

"Oil at 95 [dollars] may be optimistic, but the assumption of sanctions staying until 2017 seems very realistic and suggests Russia is planning for the long haul," Standard Bank analyst Tim Ash said in a note.

Miserable outlook

Sanctions imposed by the United States and European Union against major Russian banks and companies over Moscow's backing for pro-Russian separatism in Ukraine have led to a virtual freeze on investment inflows that has contributed to the ruble's slide.

Finance Minister Anton Siluanov said the ruble was clearly undervalued and he hoped its volatility would cease by the end of the year.

"The public mood [is] that these economic hardships are the fault of the foreign enemies of Russia," said Christopher Granville, managing director of Trusted Sources, an emerging markets consultancy in London.

Failed growth model

Putin's policies have failed to diversify an economy largely based on natural resources and the political stand-off with the West is starving the country of badly-needed investment capital.

Even before the escalation of the Ukraine crisis this year, the economy was performing poorly, with disappointing growth of 1.3 per cent in 2013, underscoring how a growth model based largely on energy exports is no longer working.

In its base scenario, the bank predicted that the Urals oil price would recover in the short term to average $95 per barrel in 2015, but fall to $90 per barrel by the end of 2017.

The bank also considered alternative scenarios, including the possibility that sanctions would be lifted in the third quarter of 2015, as well as the possibility that oil prices would recover to over $100 per barrel.

It said the scenario envisaging the lifting of sanctions next year was closer to official government forecasts made by the economy ministry, which envisage 1 per cent economic growth next year. But the bank's growth expectations were also modest even if more optimistic assumptions are factored in.

If the sanctions are lifted next year, the bank predicted  0.3 per cent economic growth in 2015 with oil at $95 per barrel, and 0.6 per cent growth if the oil price recovers to $105.

The bank also considered more pessimistic scenarios with lower oil prices. In its worst-case "stress scenario", in which the oil price fell to $60 by the end of 2015, the economy would shrink by 3.5-4 per cent in 2015.

"In working out its scenarios the Bank of Russia considered tendencies in the Russian economy in recent years, which show that existing structural constraints won't be overcome quickly," the bank said in its report.

"As a result, even with a more favourable combination of external factors moderate economic growth rates are forecast," it added. 

DUBAI — A prolonged decline in oil prices will likely slow the economies of the energy-rich Gulf Arab states and impact their massive infrastructure projects, according to Standard and Poor's Ratings Services (S&P).

"The recent drop in hydrocarbon prices, if sustained, could have a significant impact on the region's economic and financial indicators... and dampen economic growth," S&P said in a report.

On average, energy revenues for the six Gulf Cooperation Council (GCC) states constitute 46 per cent of their gross domestic product (GDP) and three quarters of their exports, the report indicated.

Total GDP of the GCC states — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) — hit $1.64 trillion last year, according to the International Monetary Fund (IMF).

S&P viewed Bahrain and Oman as most vulnerable to a decline in the hydrocarbon market, and Qatar and UAE as the least vulnerable.

"While the Gulf countries' significant oil and gas reserves are key supports for their sovereign credit ratings, their economies' concentration in the hydrocarbon sector is also a significant vulnerability," it said.

It added that the decline will hurt infrastructure projects and the private sector.

The agency revised Brent oil price at $85 a barrel for the rest of the year and $90 a barrel for 2015 and beyond. The assumption is very close to most of the GCC's budget price for oil.

Lower government revenues may also result in more efforts to tackle energy subsidy reform, but this is likely to hurt industries reliant on feedstock subsidies, such as petrochemicals.

A top World Bank official said last week that the GCC states, which pump a fifth of the world's crude oil, spend more than $160 billion on energy subsidies annually, and called for immediate cuts.

IMF chief Christine Lagarde warned last month that GCC states will face budget shortfalls if the recent decline in oil prices persists.

Oil prices have lost about 30 per cent since it started to decline in June.

The total revenue of the GCC states — 90 per cent of which come from oil — more than doubled from $317 billion in 2008 to $756 billion in 2012.

It declined slightly to $729 billion last year, according to IMF estimates.

IMF has said that GCC states will not be greatly affected in the short-term as they can tap into their massive fiscal reserves estimated at $2.45 trillion.

Separately, Oil-rich Kuwait on Monday ordered Cabinet ministers to "rationalise spending" after considering measures to counter the sharp decline in oil prices.

"The government asked ministers to control expenditure and rationalise spending in such a way to serve citizens and achieve the country's higher interests," said an official statement following the weekly Cabinet meeting.

The statement added that the Cabinet had studied proposals presented by the finance ministry about the slide in oil prices and "emphasised it will continue with capital spending and projects under the development plan".

Oil income makes up around 94 per cent of public revenues in the emirate which pumps around 3 million barrels per day.

The head of parliament's budget committee, lawmaker Adnan Abdul Samad, has said if oil prices continue at the current level, the budget surplus would shrink to just $3.1 billion from $45 billion last year.

The emirate has decided to end subsidies on diesel, kerosene and aviation fuel as a first step in revising heavily-subsidised electricity, water and petrol.  

Local media said Kuwait's fiscal reserves grew to $548 billion as of June 30. 

The tiny emirate has a native population of 1.25 million and is also home to about 2.8 million foreigners.