Russian GDP is expected to shrink by 5% this year and inflation has soared to 15%. Russia's currency, the ruble, is also getting crushed trading near record lows. Russia's growing violence and conflict and Ukraine could lead to new international sanctions as well. Russia's survival is dependent on how fast it burns through its remaining excess of foreign currency. Last year alone the country spent $134 billion strengthen the ruble.
Philip Uglow, chief economist at MNI Indicators, states Russian reserves could sink to a critical level six months from now. This is not a good sign for a country who also has to worry about servicing over $600 billion in foreign debt, most in private companies and banks.
Russia, I believe is encountering a similar problem that Venezuela had faced back in September. Venezuela had to pay back foreign debt and was struggling to maintain inflation of the currency. Venezuela has now reached an economic crisis. I believe Russia is in a better situation then Venezuela. Russia's cash buffer could keep the nation afloat for a little longer while they try to straighten out foreign affairs as well as come up with a way to strengthen the currency and consolidate the countries debt.
http://money.cnn.com/2015/02/08/news/economy/russia-economy/index.html
2 comments:
EU, particularly Germany, will probably take a blow with the imminent threat to major private sector companies in Russia. Their debts cannot be refinanced easily and so bankruptcy might leave EU banks in a unsettling position
This is probably in no small part due to US/EU sanctions on major sectors of the Russian economy as well as the tank in oil prices to nearly half their value in August. The Russian economy depends mainly on its petrol/gas exports. If the Russians wanted to "play hardball" with sanctions, they could try to coerce the Europeans into easing by cutting off oil and gas flows, but that would only resolve the first part of a complex problem in their economy.
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