Sunday, February 21, 2016

Stratfor: "Russia Has Few Options for Turning Its Economy Around"

From Stratfor, Feb. 5, 2015:
  • The Central Bank of Russia will try to reduce high inflation and encourage growth to counter the economy's rapid deterioration.
  • However, the bank probably will not be able to rely on its biggest tool — the interest rate — to do so, instead turning to less effective means that will have little impact on inflation.
  • While the central bank's efforts to reform the banking sector will not yield many immediate gains, they could spur growth in the long run by encouraging investment in Russian businesses.
  • Meanwhile, the Kremlin will use its limited resources to prop up Russia's most important sectors, including agriculture and the military.
  • Still, unrest will likely grow throughout the year as inflation continues to put pressure on the Russian people.
Low oil prices have thrown a wrench in many of the world's economies, but perhaps nowhere more so than Russia. Depressed energy prices have sent the value of the Russian ruble tumbling and inflation soaring, and much of the Russian population is struggling to make ends meet.
The Central Bank of Russia, under pressure to find a solution to the country's deepening economic crisis, is exploring all of the monetary policy options at its disposal. But the bank will find that its primary tool for combating the inflation wreaking havoc on the Russian economy — adjusting the country's key interest rate — may be difficult to actually use under the current circumstances. As a result, bank officials will likely be forced to turn to secondary, less effective measures to keep the Russian economy from sliding even further into disrepair.

An Overburdened Welfare System
After years of sanctions and declining oil revenues, the outlook for the average Russian is looking increasingly grim. Unemployment is rising, and average wages — already at their lowest since October 2005 — are still declining. Meanwhile, a growing share of the population (likely as much as 14 percent in 2015) is falling below the poverty line. The dauntingly small budget of Russia's welfare system, which is meant to provide a robust safety net for the poorest of Russian society, is buckling under the weight of its burden, and the government is having trouble keeping its poorest citizens from sinking into utter impoverishment. Social tension is mounting, and unrest will likely only grow as the year progresses....MORE
If interested see also:
Feb. 5
"The Russian Central Bank Has Just Published its Assessment of the State of the Russian Economy "
Jan. 21
Ruble Continues Collapse, Analysts Weigh In
Jan. 20
Russia: Bank of America Has A Scenario With The Ruble At 210 to the Dollar
Jan. 18
Oil: As Ruble Collapses, And Despite Tough Talk, Russia Signals It May Consider Working With OPEC To Cut Production
Dec. 29
The Russian Economy Is Showing Signs of Cracking
Dec. 27
What Changed In Russian Central Banking? "Turning the Russian petro-monetary transmission mechanism upside-down"
Dec. 14
"Russia Central Bank Prepares For Three Years of $35 Oil