SEATTLE — Over the past two years, the state of Russia’s economy has declined due to escalating poverty, international sanctions and a drastic decline in oil prices. Russia has also faced backlash since its annexation of Crimea in March 2014. Not only have these events soured geopolitical relations, but they have also contributed to the high volatility of Russian currency, a trade deficit and a depreciation in purchasing power.
The Russian economy plunged into a recession that resulted in a steep decrease in consumption and real income. Wages fell by a record 6.9 percent in 2016, and GDP declined 3.7 percent in 2015. Moreover, the number of Russians living in poverty reached a record high last year, peaking at 19.8 million people.
However, successes of government economic policies and expert financial management are steadily easing Russia’s economic and financial worries. The balance of payments and exchange rates in the country is finally picking up and improving the state of Russia’s economy. Furthermore, a reduction in both poverty and unemployment were seen for the first time in 2017.
Terms-of-trade conditions, a relative price ratio of imports in terms of exports, have also been improving the performance of financial markets in the past few months. Popular support for President Vladimir Putin has not eroded due to the steady recovery of the state of Russia’s economy. President Putin has also pledged to make poverty eradication a vital aspect of his re-election campaign in 2018.
The Russian public believes that international sanctions and economic uncertainty have made Russia immune to financial headwinds. The state of Russia’s economy has picked up and has shown gains in the last four consecutive fiscal quarters. The country is becoming more independent with regards to commodities like oil and other resources.
The toll on the oil market in recent years has led to high levels of unemployment and lower labor productivity in the Russian oil industry. However, due to the recent OPEC production cut, oil prices have recovered, moving from about $26 a barrel at the beginning of last year to hover around $50 in the current fiscal quarter.
Consequently, during the course of the recent 2017 G20 Summit in Hamburg, President Putin expressed his optimism about the state of Russia’s economy.
Given the state of Russia’s economy, a growth rate of about 1.4 percent is still expected, as retail sales and real wage rates did increase to a certain extent. Other economic indicators are also responding to the state of the Russian economy. The Central Bank is optimistic about the growth forecast. The International Monetary Fund (IMF) expects the 1.4 percent growth rate to be maintained for the next two years.
The state of Russia’s economy will show more progress with a boost in Foreign Direct Investment (FDI) from other countries. Foreign investment reached an all-time high in January 2017 of $25 billion. FDI in 2016 was 62 percent more than in the previous year. Working capital investments make up an integral proportion of investments.
Furthermore, supply-side policies like the privatization of enterprises will go a long way in bolstering the economy and boosting the FDI influx in the country. Recently, Roseneft, one of the country’s biggest oil companies, was privatized by the government.
To combat the problem of escalating poverty in Russia, increasing social expenditure, a notable supply-side management policy in the country, will be efficacious in the long run. Social expenditures can galvanize social protection and other support systems as they make very vital financial contributions to households, individuals and other entities.
Overall, the state of Russia’s economy is stabilizing, as the country gains more socioeconomic footing. 2017 has been a good year for the country, especially with regards to poverty alleviation and economic and financial security. Yet the international climate and relations with other countries could still have large impacts on the state of Russia’s economy and its recovery.
– Shivani Ekkanath