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The Russian economy is showing signs of recovery after
sanctions and falling oil prices put progress in reverse
By Heather Connon
16
|
THE INVESTOR
T
he Russian economy has had
a dismal 18 months. It was
already labouring under
the impact of Western
sanctions – imposed in March
2014 because of the Russian government’s
actions in Ukraine – when it was hit by
a second blow; the price of oil halved in
a little over six months. Meanwhile, the
rouble lost around 40% of its value against
the dollar and Russia’s central bank reacted
by pushing up interest rates, which peaked
at 17% in December and prompted
international investors to withdraw their
funds – $70 billion in the fourth quarter of
2014 alone, according to Capital Economics.
It’s a stark contrast to the heady days at
the start of the century when it was a core
member of the BRIC club – along with
Brazil, India and China it was seen as one
of the major emerging markets of the world.
Back then, the country was enjoying rapid
growth, spurred by factors such as its huge
commodity resources (it also has large
stocks of coal and timber), a move towards
free-market principles after the long era of
communism, and an emerging middle class.
As the commodity boom turned to bust, so
its growth rate fell. Sanctions and falling oil
prices have dealt its status as a fast-growing
emerging economy a further blow.
Yet there are signs that the worst may be
over. Oil bounced back from its lows at the
start of the year, albeit some way off last
year’s highs, which helped the rouble to
recover some of its value against the dollar.
Economic growth in the first quarter of the
year was down 1.9%
1
, although the
Economy Ministry of Russia is predicting
that the contraction this year will be much
lower than expected. Investors have been
encouraged by the better news and Russia’s
stock market performed strongly at the
start of the year, though admittedly this is in
recovery from a dismal few years.
Following one of its regular visits to the
country in May, IMF officials predicted
a 3.4% decline in GDP in the current year
‘driven by a contraction in domestic
ANALYSIS
RUSSIA
