ST. PETERSBURG, Russia—When Russia’s annual international investor showcase opened here this time last year, the political uproar over Crimea’s annexation overshadowed most business deals and financial concerns.
This year, as corporate executives and Russian leaders arrive Thursday in President Vladimir Putin’s hometown for the economic forum’s opening day, there’s a different elephant in the room: Russia’s struggling economy, which has fallen into recession amid low oil prices, expensive credit and Western sanctions. Since last year’s event, the ruble has lost 37% of its value against the dollar.
“Despite claims that [the economy] has finally bottomed out, economic contraction keeps going and does not seem to be slowing down,” said Yevgeny Nadorshin, chief economist at PF Capital, a Moscow-based consulting firm. “The country may now face prolonged recession or stagnation.”
Last year, in protest of Crimea’s annexation, U.S. authorities actively discouraged top-level corporate executives from attending the annual event, known as the St. Petersburg International Economic Forum. What was once Russia’s flashy answer to Davos transformed into a far quieter affair, with a limited number of international chief executives choosing to attend.
Few high-profile American CEOs are attending this year, but a number of European companies, including the U.K.’s BP PLC, France’s Société Générale SA and Italy’s Intesa Sanpaolo SpA, are sending their chief executives. Many American and European companies are trying to limit their public profiles, looking instead to meet with Russian counterparts on the sidelines. U.S. officials don’t appear to be discouraging attendance as strongly as last year.
“The quiet advice is, ‘If you have to go, go, but keep it low key. No photo ops, please,’ ” says Alexis Rodzianko, president of the U.S. Chamber of Commerce in Russia.
Despite the political tension and economic downturn, American companies with sizable operations and investments in Russia still feel a need to send representatives. “The big companies are here [in Russia], and they are here for the long haul,” Mr. Rodzianko said. “And they need to keep in touch with their customers.”
The reality of Russia’s latest economic downturn set in for most Russians last December, when the ruble plunged dramatically, prompting the Bank of Russia to increase its key interest rate by 6.5 percentage points to 17% in one day. The move prevented a currency crisis but dashed hopes of avoiding a recession.
Since then, the ruble has mounted a partial recovery. The Bank of Russia has rolled back its key interest rate to 11.5%. For some corporate executives and analysts, the economic pain so far has proved less severe than they feared. Meanwhile, the government has embarked on a vast $35 billion program to combat the economic crisis, bailing out banks and state enterprises in need.
Still, the picture remains far from rosy. Russia’s industrial output fell 5.5% in May from the previous year, the largest year-over-year monthly decline since October 2009, according to the state statistics service Rosstat. The recession is deepening, with analysts predicting a 4.5% economic contraction for the second quarter. Earlier this week, Russia’s central banker Elvira Nabiullina warned that Russia’s economy still hadn’t bottomed out, even though she said inflation had peaked at 17% year-over-year in March.
Even if Russia climbs out of its economic downturn in a year and a half—as Mr. Putin has predicted—analysts worry that sluggish, meager growth could ensue for years, particularly if oil prices remain low. That dilemma is likely to be at the top of the economic forum’s agenda.
“We will see many topics on Russia’s development in the current conditions, on import substitution, on [possible] new sources of [economic] growth,” said Alexander Ivlev, managing partner for Russia at Ernst & Young LLC.
The Kremlin has presented the crisis as an opportunity to make Russia’s economy more self-sufficient and reorient trade toward non-Western partners. Russian authorities are promoting import substitution on the back of the weaker ruble and working to deepen economic ties with countries outside North America and Europe, including China.
For the first time, the St. Petersburg conference’s organizers have planned special “business forums” for the Shanghai Cooperation Organization and the BRICs countries, Deputy Head of the Organizing Committee Anton Kobyakov said in a Wednesday interview with state newspaper Rossiyskaya Gazeta.
Chris Weafer, founding partner of the Moscow-based consulting firm Macro Advisory, predicted that the message from the Russian government would be that the country is “very much open for business,” with Western companies welcome to participate in the import substitution and export-led growth Russia needs to revive its economy.
Kremlin spokesman Dmitry Peskov said Mr. Putin would hold meetings with Greek Prime Minister Alexis Tsipras, as well as with leaders from Kyrgyzstan, Mongolia and China.
The Russian president will also welcome a number of former European leaders with whom he has developed ties, including former German Chancellor Gerhard Schröder, former French Prime Minister François Fillon and former Italian Prime Minister Romano Prodi. Mr. Putin will also give a keynote address Friday. Carla Bruni-Sarkozy is scheduled to give a concert.