Even though Putin believes the Russian economy is on the climb, there is still a lot to worry about. The ruble is dropping, 85 to a dollar (a record low).Russia’s
exports and government revenues collapsed, which caused, GDP to shrink 4% especially
when considering GDP is (C+I+NX+G). Unlikely to be the same problems they saw
in 2014 since Russian business have healthier finances. Foreign debt decreased.
Improvements to the banking sector due to a greater forbearance on souring
debts. Help from lower taxes, and they pay employees in rubles but the large
oil companies get paid by dollars. The government based their budget on higher oil
prices so face a 3% deficit, which led to the government cuts. Suggestions also
include government bonds, privatizing state assets, and printing rubles (which
would only increase inflation and lower the value of the ruble. In addition,
consumer spending is down as is travel. It is now cheaper for companies to
manufacture products in Russia than China, but the instability is still too
wary for many investors.
You mentioned that government bonds and printing roubles are a couple options for the Russian government, but you note that this will lead to increased inflation and a lower rouble value. However, many other nations' central banks use those mentioned techniques to spur the economy of a country. Do you not think that these techniques would work for the Russian economy?
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ReplyDeleteI find it interesting how it is cheaper to manufacture products in Russia than in China since many countries rely on China so much.
ReplyDeletePhoebe, I think a big reason for that is the fact that China makes it very easy for foreign companies to come in and set up shop. The Russian government makes it a lot harder for global companies to come in and start doing business.
ReplyDeleteAlthough Russia has been closed off to foreign investments in the past, I believe Vladimir Putin wants to change that to a degree to help economic growth. I think it was in a speech last May at a Business Russia forum where Putin said that Russians should "not be cut off from foreign investments that propel economic growth and technological advances."
ReplyDeleteHe did slow down the ruble crash, I hope with new policies at place Russia can put forward a sustainable growth plan without falling into long term inflation.
Interesting article but what could you see as a decisive path towards fixing this problem? out of the solutions given, which combination do you think would yield the most success?
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