Russia - Overview
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Despite high energy prices and the global economic recovery, the Russian economy reached its lowest level of growth since the 2008-2009 crisis and there has been a drop in investment. Growth is partially impedede by the restrictive monetary policy of the Central Bank, which is trying to contain the high levels of inflation (7% annually). Industrial production has been badly harmed and suffers from lack of competitiveness, while at the same time Russian has become a member of the WTO. Wages are growing on average more quickly than productivity. Despite the high price of oil barrel, the current account surplus has diminished and the country has been experiencing a leaking of capital. Its limited production capacities, insufficient investnment, the excessively strong rouble and limited access to credit have all contributed to its economic slowdown. Teh 2014-2016 austerity budget is planning to introduce a number of budget cuts, while the main strategy remains unchallanged. A budget deficit of 0.5% of the GDP is predicted for 2014, its double (1%) in 2015 and 0.6% in the following year. Because of the weaker rouble and higher energy prices than predicted, the budget could nonetheless avoid creating any deficit at all in 2014. A reduction in spending of at least 5% in all areas has been agreed, with the exception of social spending, civil servant wages and Russia's foreign commitments. Defense spending will rise by 18% in 2014 and 33% over the following two years, as part of the ten-year rearmament programme which aims to modernize Russia's military. The Russian economy is facing many challenges: its dependence on raw materials, which makes it a largely a rentier economy, corruption responsible for a bad business climate, lack of structural reforms, an aging population, vulnerability to the economic instability of the eurozone and the possible slowdown of Chinese growth, the fall of the ruble, or the decline in oil prices.
The unemployment rate, which risen as an effect of the 2008/9 crisis, has now decreased to near pre-crisis levels (6%) and real wages have grown. However, social inequalities are still marked, particularly between big cities and rural areas. Only 1% of the population owns 71% of private assets. Despite the appearance of an urban middle class, the poverty rate is still at 16%. A protest movement coming from the middle classes has been demanding the end to corruption and nepotism.
Despite its large surface area, Russia has a relatively small amount of arable land because of unfavorable climatic conditions. The country nevertheless owns 10% of the global agricultural lands. The northern regions of the country concentrate mainly on livestock and the southern regions as well as western Siberia produce cereals.
Industry represents more than a third of Russia's GDP and employs up to 30% of the population. The country inherited most of the Soviet Union's industrial bases. The most well developed sectors are chemicals, metallurgy, mechanical construction and defense sectors.
The service sector employs more than 60% of the population and generates slightly under 60% of the GDP. After the 1998 financial crises, the banking sector has not yet undergone a complete restructuring. Given the size of the country, the transport, communications and also trade sectors are particularly significant. Tourism is becoming an important source of revenue.
Foreign trade overview
The country shows a high trade surplus, thanks to its rich natural resources, especially hydrocarbons, and this should continue regardless of the drop in raw material prices and the deterioration of the global economic situation, which might reduce its surplus. In 2013, Russia's trade balance (179 billion USD) declined by 6.9% compared to 2012, with exports declining by 0.9% while imports grew by 2.6%.
Although FDI flux had considerably increased since the beginning of the 2000s, their share in the GDP (1.5%) remains small given the country's growth and the potential fo the Russian economy. For the most part, these are circular investments. Although over the last few years, Russia has implemented positive economic reforms, the state's administrative problems, corruption and the uncertainties of the rule of law remain significant.