The Russian Economy is in ‘shock’ after the country has been waging an economic war with the West for over a year now. Find out about what this might mean for you and your portfolio, as well as how Russia’s economy has been doing before and after the tensions began.
Overview of The Russian Economy
The Russian economy is in a state of shock after years of sanctions and low oil prices. The country’s GDP has shrunk by 3.7% in the first quarter of 2016, compared to the same period last year. This is the steepest decline since 2009. The ruble has lost nearly half its value against the dollar since 2014, and inflation is at 13%. Meanwhile, wages have stagnated and living standards have declined.
The main reasons for this economic crisis are the fall in oil prices and Western sanctions. Oil and gas account for around 70% of Russia’s exports and 50% of government revenue. So when prices collapsed in 2014, it hit the economy hard. The sanctions, imposed in response to Russia’s annexation of Crimea, have also hurt by limiting access to Western capital and technology.
The Russian government has responded to the crisis with a mix of spending cuts and stimulus measures. It has also been trying to prop up the ruble by selling foreign currency reserves and intervening in the currency markets. But so far these efforts have not been successful in reversing the economic decline.
The long-term outlook for the Russian economy is uncertain. If oil prices stay low and sanctions remain in place, then further decline could be in store. But there is a chance that the decline will stop or even reverse, if sanctions are removed and oil prices recover. The Russian economy is currently extremely dependent on the price of oil. Oil and natural gas revenues account for more than half of federal government revenues. If prices stay at their current level, the government would have to make considerable spending cuts to avoid large deficits in its budget.
Government increase taxes
The government could also increase taxes, which would further depress consumer spending. These measures would reduce economic growth further. According to estimates from the World Bank, Russia’s GDP could decline by another 0.5 percent in 2016 and 2017 in this scenario. But if oil prices rebound from their current level of around $35 per barrel and sanctions are remove, the Russian economy could see a small boost from growth in consumer and business spending. The World Bank estimates that GDP growth would increase by 1.6 percent next year in this scenario.
The Russian economy is also plague by structural problems, such as a shrinking workforce. An unproductive agricultural sector, and poor infrastructure. While these factors are not new, they have been exacerbated by the economic crisis.
How Did Russia Get Here?
In August of 1998, Russia was in the midst of an economic crisis. The ruble had collapsed and inflation was soaring. The country was in shock. How did Russia get here?
Many experts say that the roots of the current crisis can be found in the 1990s, when the Soviet Union collapsed and Russia embarked on a transition to a market economy. This transition was not easy, and it is often said that Russia never really completed it. As a result, the country has been plagued by various economic problems ever since.
In recent years, these problems have been exacerbated by Western sanctions, which were imposed after Russia annexed Crimea in 2014. These sanctions have made it difficult for Russian companies to borrow money from international capital markets. They have also made it harder for Russian citizens to travel abroad and access foreign goods and services.
The current crisis is thus a perfect storm of sorts, with various factors coming together to create an acute economic situation. It remains to be seen how Russia will weather this storm, but one thing is certain: the country is in for a long period of economic hardship.
What Will Happen Next?
No one knows for sure what will happen next in Russia. The country is in shock after the announcement of new sanctions by the United States. The Russian economy was already struggling, and these new sanctions could be devastating. Many Russians are wondering what will happen to their country now. The only thing that is certain is that Russia will continue to be under fire for the foreseeable future.
Those who are not familiar with the Russian people and their history, know that the Russians have proven themselves to be extremely resilient during periods of crisis. The German invasion during World War II was a national tragedy, but it didn’t destroy the Russian spirit. In spite of everything they went through in World War II, the Russians were able to rebuild their country and create a lasting empire greater than anything they had previously enjoyed. Since then, Russia has been under constant attack from enemies within and without. Through all of this turmoil, the Russian people have never given up or lost sight of their homeland. This is what makes them such interesting people to live with.
They are tough, resilient, and care deeply about their homeland. This is why most Russians will continue to believe in their country even if the policies of the West begin to take a toll on their economy. The Russian people still have a strong belief in themselves and what they are capable of accomplishing. Their history has proven that many times over.
It is no wonder that many Russians saw the Ukrainian crisis coming from a distance.
The Russian economy is in shock after years of sanctions and falling oil prices. This “economic war” has left the country reeling, with many businesses forced to close their doors and workers left unemployed. The Russian people are struggling to make ends meet, and the situation does not seem to be improving any time soon. With no end in sight, the economic war on Russia looks set to continue causing pain and suffering for the people of this proud nation.