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Russia’s January hangover to last longer than most


For Russians, who celebrate Christmas on January 7th, this year's headaches will not be solely vodka-induced.

There are increasing concerns about the similarities between Russia now and around the time of its 1998 financial crisis: oil price declines, ruble devaluation, coruscating inflation and steep rises in interest rates.

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A barnstorming annual speech by President Vladimir Putin last month failed to reassure ordinary Russians, who pulled their cash out of banks in December as the ruble continued its slide. And the New Year is unlikely to mark a new dawn for them.

"The main factors behind the decline in the ruble are still there. I expect the difficulties to remain," Carlo Gallo, director, Enquirisk, told CNBC.

Geopolitical concerns to weigh in 2015

Economic data for January 2015, which has two fewer working days than the same month in 2014, is expected to show continued weakness, with analysts at Renaissance Capital warning that consumption was accelerated in the closing months of 2014, meaning that some of the usual January activity will be muted.

"People have been purchasing goods, finalising deals, possibly even taking credits in 4Q14, when prices and rates were not yet hit by rouble weakness and the aggressive CBR rate hikes," they wrote in a research note.

Russian companies with hefty debts in foreign currencies are facing a near-perfect storm for their businesses.

A woman walks past a board listing foreign currency rates against the Russian ruble outside an exchange office in Moscow on December 16, 2014.
Russia’s ruble rout: Why it shouldn't surprise you

Meanwhile, U.S. based credit agency Standard & Poor's warned that it could downgrade Russia's credit rating to junk status.

Near-perfect storm

Russian companies with hefty debts in foreign currencies are facing a near-perfect storm for their businesses.

The Russian government will spend hundreds of billions of rubles propping up companies affected by Russia's economic troubles in the early days of 2015. On New Year's Eve, it emerged that it would spend 150 billion rubles ($2.5 billion) propping up Novatek's Arctic gas project and had bought 40 billion euros in Gazprombank shares, shortly after a 100-billion-ruble capital injection into state-backed bank VTB was announced.

The country's finance ministry can provide up to 1 trillion rubles in new capital under emergency legislation passed by the Duma on December 19th.

Russian President Vladimir Putin at the Kremlin.
What the Moscow protests mean for Putin

Of course, government help for Russian companies (and indeed for some Western companies) is not new.

"There is more top-down intervention going on, even in normal times, than you see on the surface," Gallo said.

"It is an economy dominated by personalized relationships and top-down alliances. The difficulties of such an environment are multiplied when there's a shrinking liquidity situation and the need to repay foreign-denominated debts."

This state of affairs has driven some Russians to the streets, with protests in Moscow earlier this week. Yet most commentators believe the chances of wide-scale uprising are slim.

"Most Russians are heavily dependent on the state for their livelihood, and the cost of protesting (in terms of financial and gaol penalties) has gone up," Gallo pointed out.

- By CNBC's Catherine Boyle