Leading article: Russia is feeling the full force of the world's economic storm

When the credit crisis seemed to be just that – a credit crisis – rather than the full-blown global economic meltdown it has become, Russia boldly presented itself as a place of refuge from the financial storm. Soaring prices for raw materials, a fast-growing consumer market and a relatively small exposure to the bad debts of Western banks strengthened the rouble and encouraged investors.

That was then and this is now. Yesterday, even as the Russian finance minister was addressing an audience in the City of London, the ratings agency, Fitch, reduced Russia's long-term credit rating. Its move came less than two months after Standard & Poor's had done the same, making Russia the first G8 country to be so downgraded since the start of the financial crisis.

It is worth offering two caveats here. First, ratings agencies hardly covered themselves with glory in the run-up to this crisis, so their judgements may carry less conviction than they did. And second, Russia qualifies to be a G8 country only by virtue of its superpower inheritance. Its GDP is smaller than that of most European countries. It may be fully industrialised, but it is still in many respects an emerging economy. Its relatively high growth rates over the past five years reflect that.

Even so, there can be no doubt that Russia's economy is now in very serious trouble. The storm may have come late, but it has struck with particular force, exposing Russia's continuing vulnerability. What had seemed strengths during the all too brief boom years have reverted to being the weaknesses they always were.

As a major supplier of raw materials, including oil and gas, Russia has seen its export income slashed. It failed to diversify its economy fast enough during the good years. Oil prices are approaching the $27 floor Russia set as the insurance level for its stability fund. Moscow was hardly alone in failing to anticipate so steep a fall in prices, but it is being uniquely hard hit. Its balance of trade is now in the red.

Big Russian companies, the giant conglomerate, Gazprom, chief among them, are highly indebted, something that in the good years seemed to carry negligible risk, but now contributes to the overall sense of economic peril. Russia's stock market lost 70 per cent of its value over 2008 – the steepest fall anywhere in the world. An even more malign development, because it reverses one of the greatest government successes over the past eight years, is the flight of capital and the sharp decline of public confidence in the rouble and Russian banks. And while no one is – yet – forecasting a repeat of the default of 1998, which was widely seen as a national disgrace and humiliation, the value of the rouble has plummeted, a consequence of the retreat into cash and, for preference, foreign cash. A new "dollarisation" of the economy is underway. As elsewhere in the world, bankruptcies and lay-offs are becoming a daily reality.

The experience of recession is proving traumatic in every country affected, including our own. But in Russia, where the credibility of today's leadership rests almost exclusively on its ability to deliver higher living standards, the dangers that lurk are enormous. Nor are the still fragile government and civil institutions well equipped to cope. Scattered protests suggest that even Vladimir Putin's political capital, which once seemed inexhaustible, might have its limits. Russia's winter, always longer than most, is nothing like over yet.