Has Financial Collapse Saved Russia?

MOSCOW: Something surprising has happened to the Russian economy. Last August, Russia experienced financial collapse, defaulting on treasury bills as its stock market plunged 94% from its October 1997 peak. The ruble was devalued to one quarter of its prior value. Half of Russia's banks closed, and many Russians lost their savings, while living standards fell by some 30%. In September, inflation skyrocketed to 38% a month, and industrial production plummeted by 15%. Russia seemed in an economic free-fall. Both GDP and industrial production fell by 5% in 1998, and the IMF forecast a further decline in GDP of 9% in 1999.

Now everything has changed. Russia is turning around. Industrial production has recovered month by month. It surged by 6.1% in May, and it is heading towards growth of at least 5% this year, though GDP might barely rise as many services are contracting with domestic consumer demand. While Russian statistics remain poor, the reversal is too great to be in doubt.

The most obvious reasons for the sudden upturn is the devaluation, which caused an instant halving of imports and made exports cheaper, and rising oil prices. Industries that have grown the most, however, are not raw materials but intermediary goods, such as chemicals, pulp, paper, and construction materials, and some manufactured goods, notably microbiology, pharmaceuticals, machinery, textiles, shoes, glass and porcelain. The expansion for some products exceeds 30% in a year, while other industries continue to contract.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.


Log in

  1. An employee works at a chemical fiber weaving company VCG/Getty Images

    China in the Lead?

    For four decades, China has achieved unprecedented economic growth under a centralized, authoritarian political system, far outpacing growth in the Western liberal democracies. So, is Chinese President Xi Jinping right to double down on authoritarianism, and is the “China model” truly a viable rival to Western-style democratic capitalism?

  2. The assembly line at Ford Bill Pugliano/Getty Images

    Whither the Multilateral Trading System?

    The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.

  3. Donald Trump Saul Loeb/Getty Images

    The Globalization of Our Discontent

    Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

  4. A general view of the Corn Market in the City of Manchester Christopher Furlong/Getty Images

    A Better British Story

    Despite all of the doom and gloom over the United Kingdom's impending withdrawal from the European Union, key manufacturing indicators are at their highest levels in four years, and the mood for investment may be improving. While parts of the UK are certainly weakening economically, others may finally be overcoming longstanding challenges.

  5. UK supermarket Waring Abbott/Getty Images

    The UK’s Multilateral Trade Future

    With Brexit looming, the UK has no choice but to redesign its future trading relationships. As a major producer of sophisticated components, its long-term trade strategy should focus on gaining deep and unfettered access to integrated cross-border supply chains – and that means adopting a multilateral approach.

  6. The Year Ahead 2018

    The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

    Order now