State of Russia’s Economy Stabilizes Amid Poverty and Economic Problems


MOSCOW — Over the past two years, the state of Russia’s economy has debilitated due to escalating poverty, international sanctions and the drastic decline in oil prices. Russia has also faced heavy polarization 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 incomes of the people. Real wages fell by a record 6.9 percent in 2016 due to a 3.9 percent decline in real GDP.

Moreover, the number of Russians living in poverty reached a record high last year, peaking at 19.8 million. According to the World Bank Group, there was a sharp decline in private investment as a result.

However, the successes of government economic policies and expert financial management are steadily easing Russia’s economic and financial bulwarks. The balance of payments and exchange rates in the country are finally picking up, and improving the state of Russia’s economy. Furthermore, a reduction of both poverty and unemployment were seen for the first time in 2017.

Popular support for Russian president Vladimir Putin has also not eroded due to the steady recovery of the state of Russia’s economy. Putin has pledged to make poverty eradication a vital aspect of his re-election campaign in 2018.

The Russian public believes that the 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 consecutive four fiscal quarters. The country is becoming more independent with regard 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 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, Putin expressed his optimism about the state of Russia’s economy due to recent progress.

Given the state of Russia’s economy, a languid 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. FDI reached an all-time high in January 2017 to $25 billion, a 62 percent increase from the previous year.

Furthermore, supply-side policies in Russia like privatization of enterprises are going a long way in bolstering the economy and FDI 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 expenditure 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 becoming more stabilized, 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 international relations with other countries could impact the state of Russia’s economy to a large extent.

Shivani Ekkanath
Photo: Flickr


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