The economies dependent on the export of raw materials were hit hard by the collapse in commodity prices, especially Russia, with oil and gas industry accounting for more than half of its fiscal revenues in 2014, according to a recent report by BlackRock.
Official data shows that Russian GDP fell 3.5% y-o-y in September. It is reported to be attributed to the sharp fall in oil prices, as well as economic sanctions imposed by western countries, which weighed on its fiscal outlook.
In order to defend the plummeting ruble, both of the country’s current account and foreign reserves are shrinking sharply in recent months.
Meanwhile, the country’s involvement in Ukraine and Syria which increased defense spending, has also impacted its economy. The military budget for 2015 is expected to rise by 15% this year, led by a 60% surge in arms procurement, according to the Stockholm International Peace Research Institute. The country’s budget deficit for in the next 12 months is forecasted to rise to 2.6% of GDP, from 1.5% a quarter ago, BlackRock said.
The World Bank expects Russia’s GDP to shrink remarkably by 3.8% this year. In addition, it expects the national poverty rate in Russia to increase from 10.8% in 2013 to 14.2% in 2015 and 2016, considering retail sales had declined more than 10% in September, while the average income has slumped this year for the first time since President Putin was in office 15 years ago.
However, despite the disappointing data, Igor Shuvalov, Russia’s deputy prime minister showed confidence in the economy. “Of course we are expecting a slump and a curtailment of real incomes for Russians, but the situation is completely under the government’s control,” Shuvalov said, pointing to the improving unemployment rate, which is down to 5.2% in October from 5.3% in September.BM