In January, Russia’s central bank predicted that the country’s economy would decline by three percent. Yesterday, the bank reexamined the issue and posited that the economy would actually slow by 3.5 to 4 percent. In response, the central bank decreased interest rates by one percent, in hopes of resuscitating economic activity.
Since September, the ruble lost 40% of its value relative to the dollar. Low oil prices and political sanctions are the chief factors responsible for the currency’s decline. Oil production (the country’s largest export) has contracted significantly and is expected to remain at low levels in the coming years. Further, the European Union is poised to implementmore severe sanctions if Russia maintains its military actions in Ukraine. This scenario is more complicated by the fact that Putin’s approval ratings have increased since Western sanctions were initially implemented – they’re currently at 86%. The combination of stagnant oil prices and lack of political will to end the conflict with Ukraine seem to forecast that the Russian economy may not rebound for a few years.
Source: CNN
4 Comments
First, this is such a rapid shift that GDP is not going to provide a very good handle. Second, it implies very different impacts in different sectors, and the headline number provides no help with that. Are politically connected Russians — oligarchs — hurting? How about different regions of the country? segments of the population? GDP is too broad-based and backward-looking to help.
Falling oil prices have definitely undermined the strength of the ruble relative to the dollar. Just goes to show how vulnerable a country’s currency can be when it is largely dependent on one export. It also appears a number of oil producers plan on expanding their production, which could further lower oil prices and hurt the strength of the ruble.
Why look at foreign exchange rates? Yes, they can be tracked day-by-day (even minute-by-minute) so you don’t have the multi-month lag of data such as GDP. What do we learn from it? What don’t we learn from the (fall) of the ruble (here in dollars)?
I am intrigued by the idea that Putin’s approval ratings are extremely high at 86% while the economy is struggling. I wonder what this is the result of. Generally as the economy worsens, at least in the United States, the public’s faith in the political leaders lessen. Do the Russians have faith that the economy will get better?
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