As growth slows down in China and India, the spotlight is starting to focus on other BRICS economies that might be faltering as well.
Russia is one of those countries slipping into a new economic uncertainty.
BRICS – Brazil, Russia, India and China – have reached a stage in development where they are shedding the tag ‘emerging’.
Economic growth is slowing down in each – with upcoming sporting extravaganzas like the World Cup and Olympics buoying Brazil.
The key to Russia’s growth is mineral extraction – oil, gas and other commodities.
But the markets are shrinking as the US, Britain and other nations discover they are becoming less reliant on imports thanks to fracking technologies making shale oil and gas cheaper and easier to extract.
Slowing growth
As Russia’s growth slows, high inflation is failing to ease interest rates and the cost of credit for families and business, leaving a budget deficit with an expectant nation awaiting the government to exert fiscal controls.
The only high point in Russia’s current economic plight is consumer spending boosted by better wages, high employment and consumer credit – which although expensive, is available – says international accountancy firm Deloitte, in an economic forecast for Q3 2013.
The Bank of Russia has held the official interest rate at 8.25% for eight months in a row. The fear is the effect this will have on high consumer borrowing and that inflation might spiral out of control if the rate is cut.
Russia’s reliance on commodities that has boosted growth until now has become the economic Achilles’ heel of the nation.
All at once, traditional markets have discovered fracking, while demand has plummeted in the eurozone thanks to ongoing economic instability.
Then, commodity importers like India and China have cut back as their own growth faltered, leading to less demand.
Outside investment
Oil, gas, coal and metal extraction were down 4.9% over the 12 month to the end of Q2.
GDP was hauled down 1.6% to under last year’s 3.4% and showed the worst return since the end of 2009.
Deloitte believes attracting outside investment is crucial to Russia’s economic future.
“Foreign investment won’t come on its own,” said a Deloitte spokesman. “The nation needs to move forward on deregulating business and improving transparency.
“Moving away from an economy based on extracting hydrocarbons would make sense as well. Diversification would boost jobs and output in services and manufacturing.
“Developing a technology would also give Russia a skilled workforce and the backbone of an economy for sustainable growth and healthy public finances.”
