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New SITE policy brief on Russia’s weakening economy by Torbjörn Becker

The Russian economy is facing serious challenges in 2015 even after the currency and stock market have strengthened on the back of (expectations of even) higher oil prices. Policy makers that ignore these challenges may be in for a rude awakening when more statistics on the real economy are now coming in.

The value of Russian assets, including shares and the currency, was more or less in free fall in the second half of 2014 and into the beginning of 2015. The annexation of Crimea and continued fighting in Eastern Ukraine and the associated sanctions contributed to a general loss of confidence in Russian assets, but the fall in international oil prices was an even more decisive factor.

Financial sanctions were particularly troubling since Russian companies, both private and state owned, have significant external debt that became increasingly hard to refinance. The magnitude of this external debt is also such that it is not a trivial matter for the government or central bank to handle despite the fact that public external debt is very low and international reserves are among the largest in the world.

What role does "sudden stops" play in Russia's economy? What has happened with the capital flows in Russia after the annexation of Crimea? If it is a fact that the health of the Russia's economy is closely related to international oil prices, then how important are oil prices as a determinant of GDP growth? These and other questions have been investigated in the latest SITE policy brief written by SITE director Torbjörn Becker.

The policy brief also provides insights about different projections of Russia's GDP decline and its consequences. Read more about conclusions and solutions proposed in the policy brief, "A Russian Sudden Stop Still a Major Risk" here or read it on our SlideShare channel below.