Recession Fears Grow As 400,000 Lose Jobs

Around 400,000 Russians lost their jobs in November, official data showed on Friday, as evidence grew that the economy was plunging toward a recession expected to last until at least mid-2009.

Prime Minister Vladimir Putin told employers on Saturday not to cut jobs unnecessarily as unemployment soars due to the economic downturn.

"Businesses should not … fire people without extreme need," Putin told a meeting of ministers, RIA Novosti reported.

"Our goal is to minimize losses [of business], maintain its ability to survive, but not to guarantee its profits," he added.

The number of unemployed rose to a 1 1/2 year high of 5 million people in November from 4.62 million in October to stand at 6.6 percent of the workforce compared with 6.1 percent in October.

Factories in the car, metals, coal and construction industries sent thousands of workers on unpaid leave in recent weeks as they halted production due to falling demand and swelling inventories.

"The situation is getting worse every day," said Yevgeny Gontmakher, head of the Academy of Science's Social Policy Center, who forecasts 10 percent unemployment if, as many economists now expect, the economy stops growing next year.

Russia, which has enjoyed annual growth of around 7 percent in recent years, has seen its fortunes turn around with the collapse of oil prices, the global credit crunch and flight of investors from emerging markets.

A tight labor market was seen as one of the signs of economic overheating earlier this year as the country brought in millions of migrant workers from neighboring countries to work on sprawling construction sites.

Russia now expects its growth rate to fall to 2.4 percent in 2009 provided the oil price stays at $50 per barrel throughout the year and government measures to support the economy work.

A forecast based on $32 per barrel has been discussed, but has not been made public.

The World Bank said that if the oil price were to fall to $30 per barrel the country may need to turn to international financial institutions to prop up the budget. Russia plans to review the budget early next year.

Putin said last week the unemployment situation was "worrying" and pledged 50 billion rubles ($1.8 billion) in the budget to increase benefits and create public sector jobs. The government has also pledged support for enterprises that are the sole large employers in a city, "to maintain social-economic stability."

The country saw little public unrest during the oil boom years when household incomes were rising at double-digit rates. However, with rising jobless numbers and falling income growth, media reports about protests and hunger strikes have become more frequent.

Gontmakher said social unrest was likely if the unemployment rate hits 15 percent.

Friday's data also showed retail sales growing at their slowest pace in five years, real disposable incomes down, growth in capital investment by Russian companies growth at a near-three year low and producer prices posting a record fall.

The data comes a day after the Economy Ministry unveiled its updated forecasts.

With the sharp drop in industrial output recorded last month, household consumption was seen as the last remaining driver of growth as people go on a spending spree fearing a sharp devaluation of the ruble.

"Hope for positive growth in the fourth quarter is waning," said Tatiana Orlova from ING.

"Poor November retail sales and real income data suggest that household consumption is decelerating sharply, increasing the likelihood of a recession in 2009," Orlova said.

Calls are also growing for the government to shift focus from supporting to stimulating consumer demand through direct budget handouts, prompting optimism from some analysts.

"It is worrying to see the retail sales and real income numbers slowing this rapidly, but we continue to expect household consumption to be the bright spot next year," said Rory MacFarquhar from Goldman Sachs.