An interesting article in this morning's Financial Times examines the current state of play in the Russian economy. As one of the BRIC economies Russia could be excused for having had very positive aspirations for its continued future growth. Before the crisis hit home, Dmitry Medvedev, Russia’s President (pictured above with Prime Minister Putin), boasted in June that Russia was not part of the problem but part of the solution. Its cash-rich companies would invest abroad, Moscow would become a world financial centre, the Rouble would become a reserve currency and so on. On August 8th, their currency reserves peaked at just under $600bn - the third-largest in the world, however by this week they had fallen to $484bn. This week’s fall, $31bn, was the steepest so far. Other factors are also hitting their economy, namely:
- The Russian stock market has lost 70% of its value this year.
- The commodity prices that spearheaded its boom are now falling. Metals, energy, and food account for 80% of Russian exports. Russia is the world's second-largest oil exporter and the government’s spending plans are based on a $70 a barrel oil price, so every $1 decrease in the barrel beneath this price implies $3bn less in export revenues a year.
- Any growth in the non-energy sectors had been fuelled by loans from western banks. However the credit crunch has ensured that this easy money from the west has now fled.
- Russia has failed to diversify its economy and its politics have long made investors nervous.
"New Anxiety Grips Russia's Economy", New York Times, 31 October, 2008
An interesting article in this morning's Financial Times examines the current state of play in the Russian economy. As one of the BRIC economies Russia could be excused for having had very positive aspirations for its continued future growth. Before the crisis hit home, Dmitry Medvedev, Russia’s President (pictured above with Prime Minister Putin), boasted in June that Russia was not part of the problem but part of the solution. Its cash-rich companies would invest abroad, Moscow would become a world financial centre, the Rouble would become a reserve currency and so on. On August 8th, their currency reserves peaked at just under $600bn - the third-largest in the world, however by this week they had fallen to $484bn. This week’s fall, $31bn, was the steepest so far. Other factors are also hitting their economy, namely:
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