Russian economy remains under pressure

Triggered by falling oil prices, Western sanctions applied over its annexation of Crimea and applying economic sanctions on one of its top trade partners, Turkey, continues to put pressure Russian economy

Photo by: Reuters
Photo by: Reuters

A woman walks past a board showing currency exchange rates of the US dollar against the rouble in Moscow, Russia, January 18, 2016

Russia’s nightmarish economic crisis continues as official figures suggest the situation is not improving, despite statements from the country’s leaders.

Russian President Vladimir Putin said in late December 2015 that the worst of the country’s economic crisis was over, while the country's economy minister, Alexey Ulyukaev, said last week that the recession in the country had ended.

However, with real wages dropping by nearly 10 percent in 2015 and the retail sector showing the worst performance of the last 40 years, the number of people in Russia living below the poverty line is increasing.

A report named "Russia’s socio-economic developments in 2015," released on Feb. 10 by the country’s Ministry of Economic Development, reveals that the decrease of 10 percent by volume in Russia’s retail sector last year is the worst performance recorded since 1970.

“This much of a decrease did not happen even during the financial crisis of 1998,” the report states.

Russia went through major financial turbulence in 1998 when the government and the country’s central bank decided to devalue the ruble and default on its debt.

Another detail in the report that was underlined by the ministry was that the purchasing of food products by Russian citizens was also dropping.

It was pointed out that food sanctions imposed by the Russian government on various countries affected people living in poverty as their main spending item was food products.

In retaliation for sanctions imposed by the US and the European Union on Russia due to its activities in Ukraine, Moscow has implemented a food embargo on the same countries and stopped importing many food products from these regions.

Russia has also imposed a range of unilateral economic sanctions against Turkey, including a ban on food imports.

This followed late November’s incident where two Turkish F-16 fighter jets on an aerial patrol shot down a Russian warplane which intruded into Turkish airspace.

The intruding jet had been warned about the violation 10 times within five minutes before it was shot down.

With inflation up to 15.5 percent in 2015, the increase in poverty is another consequence of the economic crisis in Russia.

The number of Russians with incomes below the poverty level ($120 per month) increased to 13 percent last year.

According to Rosstat, the country’s official statistics agency, the poverty rate in Russia was 11.2 percent in 2014 and 10.8 percent in 2013.

Meanwhile, the liquidity of Russian citizens also decreased last year for the first time since 1998.

The Russians have spent more money than they have earned and their spending exceeded their income by a total of $5.5 billion, according to the Russian daily Kommersant.

According to Igor Polyakov from the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) who spoke to Kommersant, Russian people are concerned about the economic situation and therefore are increasing their savings by purchasing foreign currency, bank deposits and bonds. This also triggered the drop in consumption countrywide.

Russia’s economy has been hit hard since a drop in oil prices. The country relies on oil and gas exports for more than 60 percent of its revenues.

However, oil prices have lost more than 60 percent in value since the June 2014 peak and the country has developed various plans to cut its annual budget.

TRTWorld, AA