Low Oil Prices, Sanctions Hinder Economy in Russia

In the third quarter, real gross domestic product (GDP) in Russia contracted 4.1% from a year earlier and is largely attributed to the recent collapse in oil prices, according to a Nov. 12 report from Wells Fargo.

Falling crude oil prices led to a decline in the Russian ruble compared with the U.S. dollar, which increased Consumer Price Index (CPI) inflation into the double digits. The central bank’s policy rate also remains elevated at 11%. “The combination of relatively tight monetary policy and soaring inflation has weighed significantly on domestic demand,” the report reads.

Real wages fell by nearly 10% year-over-year, which Wells Fargo says is “a key contributor to the weakness in real retail spending.” The sanctions imposed by Western nations have also impacted the country’s economy, negatively weighing on foreign investment and trade flows.

Economists at Wells Fargo say that while the near-term outlook for Russia is dim, they anticipate real GDP to improve in 2016. “However, with oil prices projected to remain at or near current levels for the foreseeable future, the recovery in Russian [economic] activity is likely to be relatively modest,” the report states. “Moreover, with Western sanctions unlikely to be lifted in the near term, a return to the supercharged growth rates of the prior decade is likely out of reach for the Russian economy.”

- Jennifer Lehman, NACM marketing and communications associate

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