Within the first two weeks of the New Year Russia struggled as “the rouble fell by 17.5% against the dollar” and oil, their main export, prices dropped. This drop in oil will potentially cause the real income to decline due and take over 10% off of the budget. Russian money reserves may only last a year in a half if this situation persist; Russians have also began to loose hope in the rouble and withdrew deposits. There is a lot of pressure for the rouble because of foreign currency markets and liquidity within banks. Recovery from the failing rouble will be slow because of the lack of resources and weak institutions within the country. In the past, there has been growth within the county but now to move forward Russia must restructure and the economy.
8 comments:
It seems like Russia is in a lot of trouble since their main export, oil is not doing well. It is a major hit to the economy and Russia does not even have the money reserves to help pick itself back up. This leaves little hope for consumer confidence and business confidence.
The Russian economy is getting dangerously close to a full collapse. Falling gas prices, along with Western sanctions, have really put a toll on the country. Putin seems to be completely oblivious to what is going on, but he could help his country out a lot if he would retract from Ukraine. The Russian economy can be salvaged in my opinion, especially since gas prices will rise again in the future, but Putin will need to negotiate with the West and that doesn't seem likely.
Since countries like Russia and Venezuela are so dependent on volatile products such as oil there economies tend to fluctuate with the markets. Russia is in deep trouble. Not only does it not have the money in its reserves to help boost the economy, their main good has tanked over the past month. If I am Russia I am beginning to get extremely worried.
The decline in the oil prices will not only affect Russia but will also affect eastern Europe, the Caucasus and central Asia that trade heavily with Russia.
I don't think that Putin is oblivious. I think that he wants the economy to teeter more because then he can use the economic collapse to fuel his political agenda and point the finger at the West and their sanctions rather than at his administration.
It may be a positive thing since it is lowering energy costs especially since it is winter, which is when most people need cheap energy the most. Why do you say that it will be bad for Russia's trading partners?
This is a very scary situation for Russia. Russians are starting to lose faith in their economy and country; and Putin's political actions and involvement in the Ukrainian crisis have not helped the situation. Also, the economic sanctions that the European Union and the U.S. have put on Russia will not make this situation any better.
Emi brings up a good point in that this could help fuel Putin's political agenda. As far as Russians losing "faith in their economy and country," as a whole the Russian people are rather used to harsh conditions, and after Putin, the Tsars, etc., I doubt this will faze them too much. Also, these events in general all show that an economic war has already begun; given the presence of nuclear weapons this probably will never become a full-scale war, but it is interesting to note that this is the current trend for disputes and likely will continue to be so (this being a very obvious and large-scale example).
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