THE COLLAPSE IN THE PRICE OF CRUDE OIL IN THE INTERNATIONAL MARKET FORCED THE RUSSIAN ECONOMY INTO ECONOMIC RECESSION

THE COLLAPSE IN THE PRICE OF CRUDE OIL IN THE INTERNATIONAL MARKET FORCED THE RUSSIAN ECONOMY INTO ECONOMIC RECESSION

                                                       

By: 

Nurudeen Dauda-

July26, 2016

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Russia is experiencing its first recession since 2009 amid low oil prices and western sanctions imposed over the Kremlin’s role in the Ukraine crisis — although officials say the economy will return to growth next year. The collapse in the price of crude has affected the economies of oil producing countries. The Low oil prices coupled with Western economic sanctions following Russia’s annexation of Crimea from Ukraine in March 2014 have adversely affected the Russian economy, which showed no growth in the first three months of 2016, the head of Russia’s central bank research department said.

Russians are now spending more than 50 percent of their income on food purchases as the number of Russians living below the poverty line continues to rise. Russian trade with the U.S. took a major hit in 2015, dropping by 27.9 percent amid ongoing sanctions and cool political relations.“Last year was not particularly favorable for trade between Russia and the U.S. Our overall 2015 turnover was $21 billion, a decline of 27.9 percent,” said Deputy Economic Development Minister Alexei Likhachev last week.

A slight GDP growth of one or two percent is expected in Russia in 2017-2019, Prime Minister Dmitry Medvedev said. MOSCOW (Sputnik) —Russian economic growth will stand at around zero in 2016, but will increase to around one to two percent in 2017-2019, Russian Prime Minister Dmitry Medvedev said. “In the basic version [of the government's macroeconomic forecast], GDP growth this year will remain at around zero or be slightly negative. A slight growth of one to two percent is expected in 2017-2019," Medvedev said at a government meeting”.

The Russian economy suffered a setback as the ruble lost about half of its value against the dollar amid low global oil prices and the sanctions. For nearly two years, the Russian economy has been in recession. During this time, domestic and foreign think tanks have competed with each other to see who could predict the most dramatic decline of the Russian economy against the backdrop of falling oil prices and international sanctions.

Russia’s gross domestic product (GDP) in the first quarter of 2016 decreased by 0.2 percent (excluding seasonal factors), compared to the fourth quarter of 2015. According to Rosstat (Russia’s state statistics agency), Russia’s GDP fell by 1.2 percent in the first quarter of 2016 on a year-over-year basis.

The Russian economy: According to the recent assessment made by the International Monetary Fund (IMF) mission in Russia, the country’s GDP should grow by 1 percent next year. The IMF expects stabilization of oil prices and improvement in the country’s financial situation, which will help to resume economic growth. According to the report, the economic contraction was smaller than in the previous periods, due to the package of measures implemented by the government – including the transition to a flexible foreign currency exchange rate, increasing liquidity in the banking sector, limited fiscal stimulus, and the abandonment of strict regulation. The IMF mission noted a significant slowdown in inflation, due to the weakening of economic activity, and tight monetary policy designed to limit the growth of incomes.

The Russian Ministry of Economic Development has finalized the draft of its macroeconomic forecast for 2016-2020. According to the ministry’s estimates, GDP is expected to grow by 4 to 4.5 percent annually by 2019. The government version of the forecast was presented by the Chairman of the Council of the Center for Strategic Research, ex-Finance Minister Alexey Kudrin and Minister of Economic Development Alexey Ulyukaev. Both economists believe that, given the lower oil and gas revenues, the government expenses should be cut. The goal is to achieve an annual reduction of federal spending by a minimum 5 percent in real terms through 2019. Simultaneously, wages will rise at 50 percent of the inflation level. Additionally, the mobilization of all possible additional resources must be accomplished, such as attracting domestic and foreign credit financing, and privatization of state property.

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