The Russian economy appears to have made minor improvement since Tuesday’s all-time low, however fears remain as trading continues to be unpredictable.
Russia’s economy relies on oil for two-thirds of its exports; the recent drop in oil prices and economic sanctions has caused the rouble to plummet in worth. Currently a barrel of oil is worth around $60, rather than the $100 needed to balance Russia’s books.
In an attempt to prevent further crisis, the Central Bank has proposed the sale of foreign currency from its treasury. Other efforts include the rise in interest rates; on Tuesday rates were as high as 17%, but so far this has failed to prevent the situation worsening.
2014 has seen the rouble lose half of its value, following the reduction of oil prices and economic sanctions from the West. The current expectations for 2015 suggest that Russia could continue to struggle.
Economic commentators are predicting a meltdown similar to that of 1998. Job losses are expected, along with a lower purchasing power for wages and pensions. Yet, there is hope that the increased interest rates will prevent such outcomes.
Aside from the fall in oil prices, there is a growing mistrust of the Central Bank and their ability to control the currency. The suggestions that without the Western sanctions Russia would recover have been dismissed by Germany’s Co-ordinator of Russian Relations, following Obama’s continuing support of new economic sanctions.
Some have questions how Putin will react, but his influence is limited. The only options for Russia to recover are dependent on oil prices; an increase of interest rates; or more drastically, to prevent the flow of money out of Russia.