russia-paradeRussia is headed for stagflation next year, as inflation is expected to reach 10% whilst the economy contracts. In the wake of Western sanctions and falling oil prices, the government has revised its economic forecasts for 2015, now expecting the country to fall into recession as the economy shrinks by 0.8%, wiping out the previous prediction of 1.2% growth.

OPEC’s announcement that they would not intervene to prop up falling oil prices has further tightened the screws. Sales of oil and natural gas account for 50% of Russia’s national budget revenue, and the Kremlin had been counting on a price of around $100 per barrel. The current price is closer to $70, and analysts believe it could still tumble as low as $60 per barrel next year.

To make matters worse, Western sanctions in response to Russia’s annexation of Crimea, coupled with sluggish growth in the European Union – Russia’s most important trade partner – are also wreaking havoc. Russian companies owe nearly $700 billion to Western banks, but foreign investment in the country has fallen dramatically, forcing companies like Rosneft, Novatek, VTB Bank, Rusnano and Russian Railways to turn to the government for support.

Mr. Putin has already scrapped high-cost infrastructure projects, including the $19 billion South Stream gas pipeline project to southern Europe and a high-speed rail link from Moscow to Kazan.

Despite this, President Vladimir Putin is still hugely popular among Russian voters. His approval rating hovers around 80%, and many in Russia see NATO expansion and the “colour revolutions” which toppled sympathetic neighbouring regimes as having put Russia on the defensive in recent years.

Is Russia’s economy headed off a cliff in 2015? Will high inflation and a shrinking economy produce a toxic mix of stagflation? Or will Vladimir Putin be able to appeal to Russian nationalist sentiment in order to wait out Western sanctions and falling oil prices? Let us know your thoughts and comments in the form below, and we’ll take them to policy-makers and experts for their reactions!

IMAGE CREDITS: CC – BY NC ND 2.0 / Flickr – Peter Gridin

75 comments Post a commentcomment

What do YOU think?

  1. avatar
    James McManama

    Possibly…. but Russia has weathered hard times before so don’t assume we will see a radical change in policy from Mr Putin…

  2. avatar
    Dirk Schönhoff

    One day the people of Russia will get rid off theit oppressors. Then Russia can be part of the european family in peace and wealth. The day will came….because liberty and dignity are always stronger than any of an oppressor`s weapons.

    • avatar

      What opressors are you talking about ? US or EU? Because it’s them who are doing everything in their power to harm Russian people right now, not anyone else. Western politicians don’t even bother to conceal it.

  3. avatar
    Gatis Gailitis

    It’s always under a bloody meltdown. With all that money and resources and everything average person is still rather poor.

  4. avatar
    Trond Johannessen

    Hard to tell reality from smoke and mirrors, but regardless of sanctions, Russia as the number one petroleum exporter has to transform to something sustainable, or it will be supplying low cost manpower to the rest of the world after 2050. We have built many successful relationships with Russia in Europe, and this mutual investment is now placed under severe strain by a conflict that is being misused to divide and conquer by some. If Russia withdraws from Ukraine, I am not so sure we will necessarily love the face of that government. Now we risk having to carry the burden of pulling these countries out of their respective economic miseries at a great cost, when the dust settles. We have too great problems of our own for that, with unemployment close to 25 mill in the EU. Let’s make sure we’re not conditioned by nations distant from the European theatre. If we forget for a moment our differences, we all face common challenges and enemies, and the reward to making sure we are a resourceful and economically strong continent of Europeans is infinitely larger than what current propaganda may suggest.

  5. avatar

    Is Russia marching towards an economic meltdown?

    I wouldn’t call it “marching”, I rather say walking. It will take a lot more than a white glove waiter along with a sommelier presenting the legendary “sanctions” matched with the prefect wine to Putin. At this pace, two decades from now we will ask the same question.

  6. avatar
    George Danieldsg

    West is heading for social unrest.Russia will survive brutal attacks by market and political vultures because is big peace loving and strong country with excellent leaders.

  7. avatar
    Christiane Vermoortel

    So here?s the bottom line; Russia sells even more gas ? to Turkey; and the EU, pressured by the US, is reduced to dancing like a bunch of headless chickens in dark Brussels corridors wondering what hit them. The Atlanticists are back to default mode ? cooking up yet more sanctions while Russia is set to keep buying more and more gold

  8. avatar
    Jason Pi

    Fiat systems are ending. The Western lites will always voluntarily enact these crimes on their own citizens but will then say it was an accident or beyond their control. Russia at least is still trying to be a real and sovereign economy because it is a continent unto itself, and it CAN, unlike European countries that have Nothing. Russia is amassinggold and even some Euro countries are trying to repatriate their gold…but hey, it’s no longer there…

  9. avatar
    Alex Tselentis

    Much like the same finacial DISASTER we see in Europe ?? Id say Russia is far from being in the pathetic tragic state Europe is currently in, heavily devided and falt broke.

    • avatar

      “heavily devided and falt broke” According to the Putin bot here the broke Ruskis make more money than anyone else in the world. Russia already is broke, and they’ll be beyond broke with the US becoming the new gas supplier to Eastern Europe. As for who’s in a tragic state, Russia is experiencing a massive population decline and ethnic Ruskis are quickly becoming the minority there. You’re a big mafia country now, but soon you’re gonna be a little mafia country.

  10. avatar
    catherine benning

    Russia is far smarter than the European brigade we have running our interests at present. We are allowing them to secretly do deals with the USA behind our backs. The Russians are doing what all governments are paid to do by their tax payers, and that is, to take care of their peoples interests in the way those citizens want it taken care of. Whether we agree with the Russian people or not is none of our European business. Putin is popular with his nation. What is far more important is that we should be keeping a very tight eye on whether those in ‘our set up’ are marching us toward ‘economic meltdown’ by being in bed with the bribery of US scam artists. Why do they want to keep this all closeted? Could it be because they know full well there would be riots in the streets if the sell out of us all comes to light?

    • avatar

      I’d rather under stars and stripes military leadership push Russia were they belong, to Asia.

  11. avatar
    Nikolas Kalaitzidis

    would some people in west dare to share an macroeconomic point of view? then I would happily attend a debate on russeconomics..

  12. avatar
    Mhitsos Xanthos

    You haven’t yet seen how much the Russian sanctions posed on the EU will hurt the EU. Now parts of the EU depend on the goodwill of the Ukrainian Nazi government for their Russian gas. I hope you have enough woolen clothing’s :) As for contracting economy, see the GDP of EU countries minus new debt and minus another 1% at least because economists always manipulate data to make it better looking. In my town plenty of empty shop places because those shops that were still open a year ago are now bankrupt. Enjoy being the executors of Washington’s will and policies.

    • avatar

      Mitsos, somehow I don’t think that Greece’s financial problems have anything to do with Russian sanctions. Greece’s problems started long before that and the situation was brewing long before that as well…

  13. avatar
    Charalambos Cherkezos

    Did sanctions on Japan work or did they lead to pearl harbor ? And don’t forget the old greek saying ” someone can live well if his neighbour is happy and lives well ” The last thing Europe needs is another arms race especially during a severe economic crisis……

  14. avatar
    Ed Cocks

    I love it! Russian economy is breaking down and Putin is trying to divert attention to sacrificing for the glory of the Motherland. Those ships and planes don’t run on air! The Russian Navy is a joke, they have to send rescue ships out with warships to deal with breakdowns and provide spares. I suspect they could MAYBE field 4 divisions at full combat readiness but after 90 days they’d be a shambles.

    • avatar

      European countries are all riddled with debt, derivative exposure through the roof, unfunded contingent liabilities and an ageing population. The USA is also crippled with debt, and only phantom Harry Potter like conjuring of numbers by statistic agencies to give the illusion that all is well.

      Maybe you can ask your American friends to ‘torture some more folks’ as they seem to be so proficient at.

  15. avatar
    Diarmuid hollihan

    Maybe but surely the bigger danger to Europe is the reinvigoration of divisions between Russia and Europe. Europe needs to properly analyse what it must do to minimise the economic and social effects of a deterioration in this relationship.

  16. avatar

    Not sure about a meltdown but major hardship for the people definitely. Heading straight back to the days of Communism when you had to queue for an hour to buy a kilogramme of potatoes. It all depends on how much the Russians miss that past. However…, already they are being encouraged to visit Crimea for their holidays (because they love it so much!) and not the Mediterranean. So Crimea definitely is in financial trouble and … so much for choice of vacation…

  17. avatar

    The European Union “shoots” its legs.

    Germany, after the success of its post-war economy “miracle” and the success of the reunification in 1990, since the last four years of economic crisis at last feels to play a role in international politics.

    However the American demonization of Putin, in which is Germany drawn first and foremost, is simply the lack of policy. Is the deadlock. This shortsighted American-inspired policy, damages Europe and pushes the Russians increasingly
    further eastwards, expediting new alliances.

    The Europe’s loss will be primarily 16 billion dollars for farm products due to Russian embargo.
    Brazil and China are excited that they will cover this market. Maybe Turkey, too. And throughout South America.
    All of them should be thanked Europe, USA, Canada and Australia.

    Furthermore the BRICs advance to a new banking system and international trade. limiting the use of the dollar.
    In recent years China signed more than 40 trade agreements with different currency than the dollar.

    Moreover there is also the relationship of the BRICs with G77 which includes some 177 states.
    All this trade is more than 50% of world trade and is increasing.
    As soon as it will be 65%, then the dollar will be finished.

    The “smart” money like Jim Rogers and Mobius, currently are investing in Russia, because they know its capacity in the coming years.

    The Anglo-Saxon banking system, which has the monopoly for 200 years, by applying such sterile politicy, will turn away the world from itself..

  18. avatar
    Nicolas Douradou

    I’m no economic expert, but when I look at the indicators of the Russian economy on this website, it looks like Russia is doing pretty well and it leads me to think that even if there is a hard time coming in front of them, they will be able to endure a while before a meltdown.

    Some numbers:

    GDP : 2 100 B$

    GDP growth rate : 0.7%
    not a contraction as mentioned in the introduction

    GDP/capita: 6 923 $
    Which is extremely low compared to Euro Zone 31 807$
    It shows the standard of living is much lower in Russia than in Euro Zone. Which also means there is a great growth potential.

    Unemployment Rate: 5%
    really good in comparison to Euro Zone’s 11%

    Inflation : 9%
    It will be a problem if it stays this high for a long time. Especially with low GDP growth.

    Interest Rate: 10%
    It’s really high compared to the 0.3% of the Euro Zone. I guess it’s the result of the central bank trying to keep the value of the money up.

    Balance Trade : +10 786 B$
    It compares to Euro Zone. France balance Trade is negative.

    Government Debt: -0.5% GDP
    Much better than Euro zone’s 2.9%

    Ratio Debt/GDP : 13%
    Great ! Euro zone is 90%. Russia still have a long way to go :)

    Consumer confidence : -7
    Still pretty good given the situation. Euro zone is -11

    It’s most likely that my interpretation of the numbers is partial or incorrect and I welcome anyone that would correct me.

  19. avatar

    I think any resources can’t outweigh sound management. Despite debts problems, but western world is managed much better than Russia is. All modern technologies are being created in the west and it is just a matter of time when the oil and gas will no longer be so important for the world economy. What than for Russia? I red somewhere that on average one person in India has a wealth of 1000$ and on average one person’s wealth in Russia is below 900$, it’s hard to believe. And 35% of wealth in Russia is concentrated in a 110 peoples hands.

  20. avatar
    Maia Alexandrova

    Many countries have problems with their economy, it is not only Russia. Each of them is looking for solutions and working to deal with such situations. There is no need to dramatise things that much.

    Russians like Putin because he speaks with their voice. They can see that there are outside forces trying to destroy their country and Putin stands firm against them. If you have an aggressive and destructive approach towards Russia, you will achieve the opposite effect to what you aim. You will generate more resiliance in its people, more determination to survive, more creativity and unwillingly open new opportunities for development of their country. Russians will find new ways to deal with the difficulties, but you will not succeed in taking away their dignity and national pride. The aim of the EU and USA to bring Russia on its knees and subdue it, is doomed to failure and those who think otherwise, are just fooling themselves. Russia will not allow to be destroyed.

  21. avatar

    If I were Putin, I’d tell western banks to get stuffed. With a balanced budget and no debts, banks/rating agencies and other assorted financial criminals would have zero leverage.

    And then enjoy the ride as debt ridden bankrupt Europe and USA slowly but steadily decline.

  22. avatar
    Michał Podraza

    After wwII Russian society knows that they have to ‘survive’ sanctions even if it would mean breadline to the citizens, they live because of great propaganda machine. That’s it.

  23. avatar
    Gabor Molnar

    Russia should stop lying, stealing and has to stop acting, like in the medieval ages, but I believe, that Russian people are simply not ready to live like that (not all, but most of them), and that means, that Russia will fall, and it’s not impossible, that it will try to start a global war as it’s last chance to keep the lies alive.

  24. avatar
    Jason Pi

    All this because the bankrupt Western banking mafias are itching for war as revenge for them having lost Putin’s War against the Federal Reserve/Yeltsin fraudsters taking whole Oblasts’ resources with some briefcases full of paper for 50 M usd instead of 6 BN. They will back off or the World will not be as we knew it. Backs against the wall, Saudia Arabia’s oil wells may be obliterated first – a lot worse than anything seen before.

  25. avatar
    Daniele Scaramelli

    All considered, Russia never had a period of real democracy, and is now going backward to a kleptocratic fake democracy.

  26. avatar
    Jaume Roqueta

    well it seems is what you hope no? two debates in 10 days you insiting in this while no coments on TTIP. No coments on sanctionin Israel, well every day your ideology is more clear i think!

  27. avatar
    Jaume Roqueta

    can you explain why lot of european countries wan to declare palestine as a state if they are the Israelian friends? even Spain, one of the most reactioanry government… i dont understand!

  28. avatar
    Malcolm Seychell

    Europe is a puppet of the US… they want a war with russia and they will do it. Putin will win. Unfortunately european people will suffer again because of useless and traitors who are leading us. Russia will do business with China and India which are bigger the the EU all together.

  29. avatar
    Jason Pi

    There is nothing more morally corrupt than the kakistocracy of warmongering kleptocrats which have been running the West in order to achieve a one world order. What will happen when that is achieved?

  30. avatar
    Alex Tselentis

    EU is TRAIN WRECKING itself by enacting the US’s sanctions, the US is literally PAWNING Europe to get at Russia .. And Europe is ok with it all, thats the real issue here, not wether Russia is heading for “recession” if we label finacial terrorism as “recession” then yes Russia is.

  31. avatar
    Nando Aidos

    What is wrong with this? When an economy needs air to breathe, space to consolidate, time to rearrange things, the indicators the economists like so much may suffer, but that is just an economist’s shortsightedness in action, nothing else.
    Can we just stop believing that the economists’ crystal balls are any better than any other crystal balls? Or less hazy?

  32. avatar
    eusebio manuel vestias pecurto

    The Russia this economic cooling all the crude oil price fall and international sactions are living in times of change we will wait for more details

  33. avatar
    Vera Santos


    • avatar
      Tarquin Farquhar

      @Vera Santos
      Hmm, Portuguese? What’s so special about said language compared to English, French, German or Spanish?

  34. avatar
    Talis Briedis

    The Russian population may soon lynch the whole corrupt putin gang right in Red Square. Putin and his droogs have never cared for anybody, including Russian citizens. It is time for Russia to wake up and enter the new millennium. Even the Asian countries understood that communist aggression will accomplish nothing. Russia has remained stagnant. They produce nothing that is of any significant value. With all that land mass, they cannot even feed themselves. The population is tired of their leaders and the few friends living in luxury, while the rest of the country can barely put food on the table.

    • avatar

      Gees… so bloodthursty ! Nope, lynching is not in Russian style. More likely Russians will deal with it the same way they dealt with the 90s crisis – tighten the belts, re-envent themselves and their economy.

  35. avatar

    If russia collapses it will drag the eu with it. Russia owes billions to european banks and a default would bankrupt europe. In my opinion europe is already bankrupt anyway.
    This is just the americans/saudis and the rest of the oil cartel/banksters trying to grab russian oil/gold/gas by trying to create unrest, just like in ukraine.
    These psychopaths will stop at nothing, its money for nothing, we pay for it with our taxes and they fill their pockets. Scam?
    The removal of putin is underway or at least an attempt, and the installation of a puppet regime whom will do the bidding of the banksters is almost certain.
    Wow deja vu, sounds like were going through the same thing in europe.
    Removal of goverments is a specialty of the cartels, look at europe, almost all goverments have been turned into a sniveling whining usless bunch of pocket filling career wolves which do nothing more than transfer funds to brussels for (the big cause). Themselves!!
    I will celebrate the day the eu project crumbles and it will….and i will gladley wipe something with the eu flag.
    Russia is no cinderella when it comes to cartels running the show, but the americans wrote the book.
    The only good american politician is one behind bars…
    And no russia will not melt down, it wont be allowed to $$.

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