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Russia Crisis Just Beginning

Russia Crisis Just BeginningRussia Crisis Just Beginning

A prominent European think-tank contends that the Russian economy may be entering into a death spiral, driven by a combination of factors, including low energy prices, government mismanagement, a collapse in the Russian ruble’s value and western sanctions.

The recently published working paper, titled Russia’s Downfall: The Worst Crisis Since the Collapse of the USSR, shows how Russia’s current crisis differs sharply from earlier bouts of economic instability, namely the country’s default in 1998 and the global downturn in 2008-09. It also suggests that Russian leaders are compounding problems by ignoring the grim, existing economic realities, Eurasianet reported.

“Russian authorities have been consistently claiming during the past several months that the economic crisis in Russia has bottomed out,” the paper states. “However, a brief analysis of the raw data from the Russian economy, and the most realistic patterns of development of the situation, suggests that the crisis is not only far from over–it is actually only in the beginning phase, meaning that the economy has every chance of being further dragged into a strong downward spiral.”

Western sanctions, imposed after Moscow’s 2014 land grab of Ukraine’s Crimean Peninsula, have hit the Russian economy hard, in effect imposing a “credit blockade,” says the report, which was published under the auspices of the Brussels-based Wilfried Martens Center for European Studies.

This has drained Russian corporations of currency reserves, as they have had to scramble to repay a large amount of foreign-currency-denominated debt over a relatively short period.

A decade ago, President Vladimir Putin vowed to turn Russia into a high-tech state, and diversify the country’s exports. Little was done, however, to make good on that promise.

Accordingly, Russia remains heavily dependent on commodity exports, namely oil and natural gas. At the same time, according to the report, “Russian consumer-oriented industry remains mostly uncompetitive.”

 

 

Financialtribune.com