Russia On Verge Of Recession... Attempts To Defend Currency!

[bumblebee 2,528]

#1 its not pure speculation. The Rouble HAS fallen a lot in value and inflation is high so to try and figt those two problems they keep raising rates

#2 they have a lot of long-term issue such as bad demographics with aging population and low birth rates but they refuse to let in more immigrants...

They are too dependsnt on oil and natural gas and dont make other sectirs competitive

They also need to have a more free market.

That being said the past 6 months they have been doing worse because of this whole situation. This recent currency and inflation crisis as well as borderline recession has more to do with the immediate problems rather than their long-term issues!

 

 

I've got two questions for you and I will really appreciate if your spend your time on answering 

 

1. About their demographics. Here is an article from the Forbes magazine which is dismissing the gloomy portrait of the demographic situation there ( http://www.forbes.com/sites/markadomanis/2014/04/04/in-early-2014-russias-demography-continues-to-improve/ ) 

 

While they accept that in the 1990s they had a serious crisis in demographics because many people refused to give birth to a child in the situation of political, economical and social turbulence, they assume that "the positive changes over the past five years have helped Russia’s population grow by almost a million people, something which is an absolutely enormous change from the trajectory it was on previously". So can we still consider bad demographics a long-term pressure factor for their economics?

 

2. Don't you think that they have intentionally lowered their currency price in order to give some kind of a stimulation for the exports sectors? As you have mentioned, they are really dependent on oil and gas. I assume they are payed in dollars for the exports, right?

 

So, let's say previously they got $100 for 1 oil barrel and exchanged it for 29 rubles.

Now they get $100 for 1 oil barrel and exchange it for 36 rubles.

 

Naturally this will boost inflation, but this step will also increase their budget incomes, since exports of gas and oil are subjects to additional taxes. And given the fact that such transfers from the state to citizens like pensions and social welfare benefits are fixed, wasn't their currency crisis an intentional measure?

 

Thank you 

[Economy 52,854]

I've got two questions for you and I will really appreciate if your spend your time on answering

1. About their demographics. Here is an article from the Forbes magazine which is dismissing the gloomy portrait of the demographic situation there ( http://www.forbes.com/sites/markadomanis/2014/04/04/in-early-2014-russias-demography-continues-to-improve/ )

While they accept that in the 1990s they had a serious crisis in demographics because many people refused to give birth to a child in the situation of political, economical and social turbulence, they assume that "the positive changes over the past five years have helped Russia’s population grow by almost a million people, something which is an absolutely enormous change from the trajectory it was on previously". So can we still consider bad demographics a long-term pressure factor for their economics?

2. Don't you think that they have intentionally lowered their currency price in order to give some kind of a stimulation for the exports sectors? As you have mentioned, they are really dependent on oil and gas. I assume they are payed in dollars for the exports, right?

So, let's say previously they got $100 for 1 oil barrel and exchanged it for 29 rubles.

Now they get $100 for 1 oil barrel and exchange it for 36 rubles.

Naturally this will boost inflation, but this step will also increase their budget incomes, since exports of gas and oil are subjects to additional taxes. And given the fact that such transfers from the state to citizens like pensions and social welfare benefits are fixed, wasn't their currency crisis an intentional measure?

Thank you

Question 1: Well it might help if they are having kids now but there will be a delay. Their over-all population is ageing and kids born in the 90s would be entering the work-force now so at least for a few years this will slow growth...

Also like the baby boomers created a secondary smaller boom generation (baby boom echo)... This will have the opposite effect. When the Smaller Russian Generation from the 90s reaches 25-30 when many people have kids, again there will be a decline in birth rate further slowing growth for some time.

Question 2: I seriously doubt it. What caused the weakness in the ruble was the outflow of cash of Russia from Investors. If Russia welcomed the devaluation, they wouldnt be raising rates to defend the currency when their weak economy demands lower rates not higher

A weaker currency helps exports yes. But if it falls too much, imports become really expensive including materials export companies themselves may need.

Also the high inflation from a highly devalued currency also harms the economy in multiple ways. It also sends Government debt bond yields higher because investors demand higher interest rates in compensation for higher inflation which neutralizes the Financial benefits to the Government.

A gradual and modest drop in the currency tends to make exports and manufacturing more competitive. But it needs to be a modest and balanced drop. The Ruble dropped WAY too much and its doing more harm than good!

 

Also the right value is different for every Country. If your a competitive Nation and your exporters can handle a higher currency, then you might as well have a stronger currency and get cheaper imports. But if your economy is less competitive, you need a weaker currency to survive!