Thursday, January 15, 2015

Russia Experiences A Double Whammy As It Heads For A Recession

This article was first published by Seeking Alpha on January 1, 2015

By Sarfaraz A. Khan. Research Asst: Iffat Zehra

This has been a tough year for the Russian economy which had to deal with the US and EU's sanctions related to Russia's conflict with Ukraine as well as plunging oil prices. And it seems that the challenging times are here to stay.

Recession Ahead

Alexei Kudrin, the country's former Finance Minister, has recently warned in aninterview that Russia, the biggest global exporter of energy, is moving towards a "full-fledged" economic crisis while Finance Minister Anton Siluanov has also given a grim forecast.

The Western sanctions have restricted access to foreign capital for Russian corporations and led to a flight of capital from the country. To exacerbate, the European benchmark Brent crude oil prices have dropped by 48.7% during the last 6 months to its lowest level in 5 years, hovering around $58 on December 29. A prolonged weakness in oil prices to less than $60 a barrel in 2015, could cause the country's GDP to shrink by 4% next year while its budget deficit could exceed 3%, Russia's current finance minister warned last week. That's because the country gets more than 50% of its budget revenues from oil prices. The prices of the country's blend of exported crude are benchmarked against international Brent prices.

Brent prices have remained over $100 a barrel throughout the first nine months of 2014, but their future isn't looking bright due to supply glut and sluggish demand. This is due, in part, to the sluggish growth of China's economy, is set to expand at … read full article at Seeking Alpha