RRussia is the largest country in the world and represents 11% of the world’s land mass. The country is classified as an “upper middle income” economy by the World Bank, and Russia’s long three-decade journey includes periods of hyperinflation, stagflation and strong economic growth.
Here is an overview of the Russian economy.
In 1992, Russia faced two serious problems: a declining growth rate and very high inflation. Russian consumer price increased by 2,509% in 1992, followed by an increase of 840% in 1993. In 1997, inflation rates were brought under control at 11%. According to a 1998 IMF Remark, “1997 was a successful year for the Russian economy. For the first time since 1992, the economy grew, albeit barely. The current account of the balance of payments was in surplus.
The phase of economic recovery and stabilization of inflation was very short-lived. Russia’s economic situation began to deteriorate in early 1998. At that time, the country’s exports of energy resources and other primary products accounted for 80% of merchandise exports. The waves of the Asian financial crisis hit the Russian economy in the form of weak demand and an unprecedented drop in energy prices. Russia was already in a fragile state with its fixed exchange rate regime and fiscal position. The year 1998 saw inflation jump 84%, a significant devaluation of the ruble and a default on short and long-term government bonds.
The change in the country’s leadership and the sharp rise in oil prices between February 1999 and September 2000 helped put Russia on the path to impressive progress in the new millennium. The country reached the milestone of becoming a trillion-dollar economy in 2006 thanks to domestic consumption, oil exports and a politically stable environment. He is valued that “between 2000 and 2008, GDP increased by 83%, productivity increased by 70% and fixed capital accumulation expenditure doubled in real terms”.
However, the financial turbulence that emerged from the subprime mortgage crisis in the United States engulfed Russia, pushing it into recession with a large budget deficit in 2009. This period reversed the economic success of the early 2000s, and the country experienced a low annual growth rate of 1-1.5% before facing a major economic crisis in 2014. Oil prices more than halved between July and December 2014, leading to a severe shock in terms of exchange for Russia. The situation worsened with rising geopolitical tensions that began in March 2014 and led to multiple economic sanctions by the United States and the European Union (EU). The economic situation has gradually recovered, increasing by around 1.5 to 2%. In 2020, its GDP fell by around 3.6%, rebounding by 4.5% in 2021.
According to the US Energy Information Administration (EIA) December 2021 Data, Russia is the world’s third largest producer of oil and other liquids behind the United States and Saudi Arabia, and the second largest producer of dry natural gas. Russia has the largest natural gas reserves in the world. The country’s oil production is mainly controlled by national companies such as Rosneft, Lukoil, Surgutneftegas, Gazprom and Tatneft.
After its economy shook in 2014, Russia began working to diversify its economy to reduce its dependence on oil and gas exports. Russian exports excluding energy resources set a record $193 billion in 2021, an increase of 37% from the previous year. Major non-resource industries include metallurgical (25.6%), chemical (19.6%), mechanical (19.1%) and food (17.7%) industries. Russia has set a ambitious goal increase the share of non-commodity and non-energy exports by at least 70% by 2030.
World Gold Council data suggests that the Russian Federation holds 2,298.53 tons of gold in reserves, which is the fifth highest in the world after the United States, Germany, Italy and France. Russia’s gold reserves constitute 21.4% of its total foreign exchange reserves.
The month of January 2022 update by the IMF projected that Russia’s GDP would grow by 2.8% in 2022 and 2.1% in 2023. However, current developments are expected to alter the growth projections.
Disclaimer: The author has no position in the stocks mentioned. Investors should view the above information not as a de facto recommendation, but as an idea for further consideration. The report has been prepared with care and any exclusions or errors in it are completely unintentional. The data mentioned is based on IMF, World Bank and EIA reports.
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