Russia Is Literally Going Broke Thanks To A Plunging Ruble And Low Oil Prices


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Russia Is Literally Going Broke Thanks To A Plunging Ruble And Low Oil Prices


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Plunging oil prices and a weakening ruble have hammered Russia’s economy to its lowest point since 2009 according to recent reports. As the Ukraine crisis drags on and sanctions against the country continue to limit its trade, Russia is on track for even more economic erosion, which threatens to bring down the former superpower.

Russia’s GDP contracted by 4.6 per cent in the second quarter of this year from an earlier 2.2 per cent decline in the preceding three months, according to the Federal Statistics of Moscow, a state agency which tracks the Russian economy. The poor performance was even worse than what analysts had predicted. Analysts from Bloomberg Business had originally predicted a 4.5 per cent slump.

Russian economists also pointed out that the country’s output has shrunk by an unprecedented 4.4 per cent in the same period, making it their “lowest point” in years.

The country is facing its first recession in six years. Inflation rates have shot through the roof. Commodity prices have in turn skyrocketed, making the ordinary Russian unable to purchase as much as they would have a year back.

Piotr Matys, a foreign exchange strategist with Rabobank said, “While second-quarter growth surprised on the downside, perhaps far more importantly is the fact that the outlook for the Russian economy has deteriorated so far in the third quarter. The central bank may have to pause the monetary policy easing cycle at a time when local banks are still cut off from external sources of funding.”

The Russian ruble has fallen about 43 per cent to the strengthening dollar in the last 12 months, the worst performance globally, according to Bloomberg. As at Tuesday 8:16 p.m., it traded at 62.9620 to the dollar.

Forward rate agreements have also meant the country will see an increase by up to 23 points in borrowing costs. Already the Bank of Russia has lowered its base interest rate by five percentage points to 11 per cent from 6 per cent this past year.

Russia will continue to experience two grueling years of recession going past 2016, including a 1.2 per cent slump next year according to the Russian Central Bank. And analysts are in agreement. Capital Economics Ltd., analyst Liza Ermolenko said, “The economic prospects for the coming quarters look pretty grim.”

Analysts attribute Moscow’s falling fortunes to a sharply swinging ruble that has hit consumer demand hard and hurt capital investment prospects. The U.S. /EU sanctions imposed for president Vladimir Putin’s military engagement in Ukraine coupled with falling oil prices for a country that depends on oil and gas for half of its revenue collection will only make things worse going forward. For everyday Russians, the future continues to look bleak.

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