World

Russia's Recession Is No Cause For Alarm

| by Mark Jones

Russia's current economic situation -- while indeed concerning for the country -- should not be any cause for alarm. 

According to The Independent, Russia is in a tight spot when it comes to cash. Russia, whose economy is heavily reliant on oil production, has been in an economic recession since 2014. This recession has been brought on by a reduction in global oil prices and sanctions that the U.S. has imposed on the country.

To cover gaps in their budget, Russia began dipping into their foreign exchange reserves. In September of 2016, their deputy finance minister, Alexey Lavrov, expected them to deplete the reserve in the span of a year. The international community was in agreement. Ondrej Schneider, chief economist at the Institute of International Finance, said he expected the fund to be depleted by the middle of 2017. Many speculated that the country would have to begin dipping into pension pots.

While Russia's economic situation is indeed troubling, there is no reason for the country to panic just yet. Russian officials seem to be confident that Russia can bounce back from its economic problems, and given current figures, they seem to be correct.  

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Back in January, RT reported that, according to Russian Finance Minister Anton Siluanov, Russia "will be able to maintain the Reserve Fund if oil prices stay at $50 per barrel." In addition, he said that such oil prices would bring in the equivalent of $16.8 billion in extra revenue, and would allow the country to replenish the National Welfare Fund.

As of Jan. 13, oil prices were much higher than Siluanov said they needed to be in order for Russia to pull itself out of its economic slump, trading at $55.70 per barrel. 

“Considering the oil price growth early this year, we have an excellent opportunity to cut spending from the Reserve Fund and preserve it," said Russian Minister of Economic Development Maxim Oreshkin. 

While prices have dropped since January, they have nevertheless remained close to Siluanov's figure. As of March 17, oil is trading at $48.72 per barrel, according to MarketWatch. 

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Russia's 2017 budget assumed that oil prices would stand at $40 per barrel throughout 2017. Therefore, while the current price of oil might not produce the extra revenue that Siluanov hoped for, it is more than high enough for Russia to maintain its 2017 budget and avoid dipping into the foreign exchange reserve. 

Even if Russia cannot bounce back from this economic crisis, their inability to do so should have very little impact on the United States, and should not be a major concern for Americans. According to Export.gov, Russia is 24th on the list of the United State's largest export markets. Therefore, it is unlikely that Russia's economic problems will have any significant impact on the U.S. economy.

Click here for the opposing view on this topic.

Sources: The Independent, RT, MarketWatch, Export.gov / Photo credit: Prime Minister of the Russian Federation via Wikimedia Commons

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