Prior to the Global Financial Crisis, Russia, a member of the so-called BRICS group, was seen as a rapidly emerging economy which was preparing to take its spot on centre stage of the global economy. However, none of the BRICS nations (Brazil, Russia, India, China and South Africa) have fared that well since the crisis struck although China continues to enjoy what most would consider as stellar growth, but it has slowed compared to its own remarkable previous levels.
For its part, Russia has been the focus of Western sanctions over its annexation of the Crimea and (from a Western perspective) interference in Eastern Ukraine where it is believed to be actively backing pro-Russian separatist forces in a rumbling civil war. The fall in oil and gas prices has also hit Russia hard as a major exporting nation of gas and oil. These factors have been behind a rout of the value of the Russian Rouble which has slumped by about 30% against the US Dollar over the past twelve months
Against this backdrop, it is unsurprising that the Russian economy has contracted by 1.9% over Q1 2015. Indeed, the retrenchment of the Russian economy was slightly less severe than the government’s forecast of a 2% decline. The economy managed growth of 0.4% in Q4 of 2014. Russian President Vladimir Putin, expects that the Russian economy will return to growth by the end of 2015, but the European Bank for Reconstruction and Development (EBRD) is not so Bullish. EBRD is predicting that the Russian economy will contract by 4.5% this year and by a further 1.8% next year. Most analysts are expecting that the oil price will remain subdued for the next year or two, but Russia could be helped with a political solution of the Ukrainian crisis.
Whilst the oil price has collapsed from $110 or so a year ago to stand at $67 currently, the fact that oil is priced in US Dollars has helped to keep Russian coffers in better shape when Dollar receipts are converted into Roubles (down by 30% in the same time period).
Russian inflation stands at 16.4% and wages in real terms are down by 8.4% at the end of Q1 from where they stood 12 months earlier which highlights the pain Russian citizens are feeling due to the economic squeeze.