Economic Analysis of Russia

The Russian economy is currently stable, this was after it faced a very long depression period. In the year 2015, the economy of Russia was at the verge of collapsing, with a 15.9% rate of inflation (Durach, 44). During this period the country was facing an economic collapse. This was however not the case in the year 2016, after the inflation rates dropped from 15.9% to 7.4% during the January - October period (Nalbandov, 70). The economy of the country has since stabilized, with the banking industry largely stabilizing in the country. In addition, due to economic growth, the amalgamated budget of local governments registered a surplus during the first eight months of the year 2016. Moreover, the balance of payment is stable in the country, thus showing how the country has been able to plan on how to manage its economy. The unemployment rate in the country is at 5.6%, being the minimum rate of unemployment ever registered in the country.

            Russia is an energy producing country, which depends on the export of oil and gas. These resources have really helped in raising the economy of the country (Durach, 45). However, due to the reduction in oil prices, the country faced a lot of economic problems, thus leading to very high rates of inflation. In order for the country to stabilize its economy, it had to first and foremost reduce its spending. The country therefore reduced its expenditure thus enabling it to control the rate of inflation. Moreover, economic sanctions have also made the country to suffer, thus making it to focus on other resources other than oil and gas. The country also tapped the reserve funds, hence being able to regulate its revenue collection and thus being able to stabilize the economy. The country is currently stable, but the reserve funds which are expected to be depleted by the end of 2017, are facing a very severe pressure (Nalbandov, 71).

            Economic sanctions and the falling of oil prices in the international market has negatively affected the country as a whole, making the cost of living to be very high. In addition, the rates of unemployment have been on the rise, after the economic sanction, since most investors’ assets were frozen (Durach, 45). This consequently made it very hard for foreign investors to invest in the country, due to the fear of falling victims. In addition, due to the economic stagnation in the country, two state banks have undergone recapitalization. This move has therefore seen most people losing their jobs, since the banks were looking for alternative ways of reducing their costs in order to increase profits. On the other hand, the country’s currency also destabilized, due to low foreign exchange in the country, thus making the currency to lose its value. Employees’ wages have therefore dropped, due to the high cost of living, and destabilization of the Rouble (Nalbandov, 71).

            The currency of Russia, the Rouble, has been destabilized, due to the economic sanctions, hence making it to lose its value. This has therefore translated to high costs of living in the country, and reduction in minimum wages for the employees. Due poor foreign exchange rates, the country has been facing financial crisis, since it cannot be able to cater for its needs. This move therefore saw the country using more than $135 billion from its reserves (Nalbandov, 71). The country had therefore to depend on its reserves in order to be able to stabilize its economy, thus in case it faces any kind of economic problems, then it will have to seek financial support from other countries. The destabilization of the rouble further led to high rates of inflation, thus making it hard for the country to be able to sustain itself without looking for alternative ways of funding itself (Durach, 46). This therefore made Russia to opt to use the reserve funds, thus being able to stabilize its currency and economy at the same time.

            Disposable income in Russia has been deteriorating since the year 2014 when Western sanctions were issued over its part in the Ukraine crisis. Consumers had less money to spend, and so they had to avoid shopping as a means of being able to save the little money that they had left. Customer demand in retail sales fell by 5.1% in the month of September and 5.2% by the end of July (Durach, 46). The fall of disposable income in the country has been consistent for the past 26 months. Through this time the wallets of the citizens of Russians have further shrunk by 15%. The rates of poverty have increased in the country thus making Russia to be among the top three countries with high poverty increase rates. On the other hand, food items demands reduced by 6.5%, whereas non-food items reduced by 5.3% (Nalbandov, 72). Retailers have therefore experienced less sales, receiving 1,5 million roubles less in revenue.

            Business in Russia has become non-profitable, this is so because, the demand of goods is very low, hence making it hard for businesses to be able to realize profits (Carbaugh, 31). In addition, due to the economic sanctions, most global companies have found it very hard to be able to conduct business in the country, since they cannot be able to trade easily with other countries. In addition, due to the increasing rates of inflation, the government has been forced to increase its taxes on commodities. This move has really affected many businesses thus making it hard for businesses to remain stable (Nalbandov, 72). Moreover, most businesses in the country have opted to exit the country, since they cannot be able to match the high taxes imposed on the products. In order for companies to be able to survive in Russia, they are forced to depend on external funding, this affects businesses since banks charge huge interests.

            Due to the European Union sanctions on Russia, Russia has banned food imports from European countries. This has therefore seen the country receiving less imports from European countries. Moreover, Poland, which was Russia’s leading trading partner, is now importing products from China. This moves saw Russia’s exports to Poland reducing by 5.9% hence affecting the economy of Russia (Nalbandov, 72). In addition, Russia has not been able to either export or import goods from the EU countries. The revenue earned from the sales of oil and gas has drastically dropped, since European countries were the main market of Russia’s oil. In addition, most countries have also banned their exports to Russia, due to the low demand of commodities in Russia. This move has therefore seen the rise in the prices of imports in Russia since most countries do not want to trade with Russia (Carbaugh, 31).

Work Cited

Nalbandov, Robert. Not by Bread Alone: Russian Foreign Policy Under Putin. , 2016. Internet resource.

Durach, Flavia. Public Opinion Towards the Eu: Triumphalism, Euroscepticism or Banal Representations?, 2016. Internet resource.

Carbaugh, Robert J. International Economics. , 2015. Print.