It is not a secret that all those Western sanctions imposed on Russia by the USA and its Western allies used to be considered with a smile by most Russian politicians. Now we can see that the consequences are getting more and more serious and Russian politicians do not want to smile anymore. The projections become gloomier amid depreciating oil prices. Apparently, the Russian economy, which is heavily dependent on the export of oil and natural gas, couldn’t but feel the outcome, Masterforex-V Academy reports.
The experts reiterate the fact that falling oil prices alone would have been enough to depress the Russian economy. Apparently, if coupled with sanctions, the current situation in the global market of crude oil has had a devastating effect on Russia, its economy and national currency. They say the probability of an economic disaster in Russia is growing. At this point, 41 counties around the globe have already introduced sanctions or other limitations against Russia.
The country’s banking sector has also found itself neck deep in various problems. This is confirmed by the fact that S&P recognized Russia’s banking sector as the most vulnerable one among the banking sectors of TOP 7 emerging markets.
As the ball is rolling, the situation is getting even worse, thereby forcing foreign businesses flee Russia. For now, the list is pretty long and is still expanding. It includes such banking heavyweights as Sumitomo Mitsui Banking Corporation as well as Morgan Stanley and JPMorgan Chase.
As of early December 2014, Russia’s gold-and-currency reserves was estimated at 418 billion dollars, which is quite a lot of money. It seems like such a huge financial safety cushion should prevent the Russian government from worrying about the near-term future of Russia. Still this is what we have on the surface. If we dive deep into the matter, we will find out that these funds are not enough to settle all the liabilities Russia has while they are still increasing.
With that said, all the gloomy forecasts and doomsday scenarios offered by financial experts are now more likely to manifest themselves that they used to be. With that said, if the negative tendency continues and the Russian government keeps on spending the country’s gold-and-currency reserves, at some point in the near future the reserve are going to diminish to the level when they are enough to cover only Russia’s 3-month exports. If this is the case, we are definitely going to see panic among investors, which will end up with a fast and big-scale flight of capital.
We are not exaggerating the things. You see, over 85 billion dollars of foreign investment already left Russia over the first 9 months of 2014. Experts say that the total amount of foreign investments withdrawn form the Russian economy in 2014 may reach $120bn. If this is the case, altogether these economic and financial problems are expected to make the Russian stock market capitalization shrink by more than 30%.
There is another serious challenge the Russian government is currently facing. The thing is that the Russians are sick and tired of the rapidly depreciating Russian Ruble and are in a hurry to exchange it for the US Dollar and other foreign currencies like the common European currency.
At the same time, the IMF reports that each time oil prices drop by $10/b, Russia’s deficit increases by 1% of the GDP. Still, the IMF predicts that oil prices are unlikely to remain below $60/b in 2015. Apparently, oil prices are going to become one of the biggest challenges for Russia next year.
Meanwhile, Fitch predicts a major recession in the Russian economy in 2015. This supposition is partially confirmed by the fact that the Central Bank of the Russian Federation decided to increase the key interest rate up to 10,5%. The experts assume that this interest rate decision will serve as a big deterrent to the domestic demand, thereby leading to a major recession amid falling oil prices as well as the long-lasting effect of the existing (and maybe future) sanctions.
As for the GDP, it is expected to shrink by 1,5% in 2015 to reach 0% in 2016. Hover, if oil prices continue to go further down, the scenario may become even gloomier. With that said, Russia’s fate seems to be heavily dependent on the situation in the global market of crude oil as well as the sanction imposed on it.
