Russia Continues to Weather Economic Storm

Russian President Vladimir Putin remains cautiously hopeful about the economy as his country adapts to Western sanctions over the Ukraine crisis. Finance Minister Anton Siluanov believes the worst part of the economic turmoil is over amid low oil prices, shrinking wages and outside pressure.

Russian President Vladimir Putin remains cautiously hopeful about the economy as his country adapts to Western sanctions over the Ukraine crisis. Finance Minister Anton Siluanov believes the worst part of the economic turmoil is over amid low oil prices, shrinking wages and outside pressure.

According to recent data, wages in Russia contracted to levels not seen since 1999, falling 9.9 percent in February. Retail sales fell by 7.7 percent, and this is the second month that retail sales have dipped. Analysts point to a weak ruble and low oil prices as primary reasons for the slump. Inflation has jumped to 16.7 percent, the highest since 2002, and consumption is falling as well. In fact, consumption may fall to its lowest level in over two decades. On top of that, the unemployment rate increased from 5.5 percent to 5.8 percent. With so much going against Russia, economists predict that the nation will undergo a recession, the first since 2009. The ruble itself has plunged a whopping 40 percent since the Russian annexation of Crimea.

Good News for Russia

Russia’s central bank has implemented easing strategies to give the economy an extra jolt. In addition, Russia’s economic output may surge to six percent, allowing the country to pay down its debt. Although the central bank predicts the economy will shrink anywhere from 3.5 to four percent this year, with additional contraction expected for next year, Economy Minister Alexei Ulyukayev is more optimistic, believing the economy will grow at least two percent in 2016. He also believes that inflation had reached its peak, and capital flight may be lower than anticipated, falling under $100 billion.

And there is still the ruble issue. The ruble has fallen drastically, but the currency has been trading at around 60 rubles for each dollar in the last few weeks. The central bank also embarked on a long-term strategy to allow the ruble to fall, bolstering exports and making costs lower for oil producers. A high export value means Russians do not have to rely on high oil prices to support their economy.

When will the sanctions end?

German Chancellor Angela Merkel said sanctions would remain in place as long as Russia honors the cease-fire agreement over the Ukraine situation, but the United States is taking a more hardline stance, vowing that the restrictions will go on until Russia gives the Crimea back to Ukraine, something that is never likely to happen. In essence, the United States has declared war on Russia by insinuating that the sanctions could be permanent. So far, neither side is openly advocating for war, but Russian leaders plan to live under the sanctions as opposed to caving in to the West.