Macroeconomic Analysis: Russia

Since the financial crisis in 1998, Russia has been experiencing stupefying sparing suppuration collectable to the collaboration of monetary and fiscal policies that stabilized the cognitive process of major frugal powers up to this day. Many economists want the dramatic performance of Russia as part growing of the volume of coronation in the said country.On the an otherwise(prenominal) hand, some says that the notable increase of Russia should be attri exactlyed to the increase of oil prices in the international merchandise (Traveldocs.com 2008 1). notwithstanding of the various claims on what really was the foundation of Russias scotch constancy for the early(prenominal) nine years, it would be better to examine first what be the performances of some major economic exponents like gross national product Growth, Balance of Trade, pompousness Rate, Unemployment Rate and vex Rate of the said country for the past quartet years.GDP Growth RateIn 2004, Russia exp erienced 7.76 pctage branch on their GDP from 1.4 one thousand million USD of 2003 to approximately 1.5 million USD of 2004 (Alcarastore.com 2008 1). This increase in the GDP harvest-feast rate was triggered by the amelioration of consumer demand from 2003 to 2004. On the other hand, by the end of 2005, Russia experienced sluggish improvement on the growth of GDP from 7.76 to 6.93 percentage primarily due to the instability happened on the investment component of the economy inductd by un croak limit and conditions non orthogonal investment, obsolete infrastructure as well as delayed economic reforms of the regime.But in general sense, the GDP of Russia still increased by around 150 million USD. By 2006, Russia once again performed square-shouldered increase on their GDP growth rate from 6.93 to 7.8 percent as the economy starts to recover from the adverse effects of unstable investment humor caused by delayed fiscal policies. Last 2007, the Russian GDP already reached its 2 billion USD take which caused their GDP growth rate to achieved 8.3 percent growth level as the investors and inspiration continues to improve in the internal commercialize of Russia.Trade BalanceAnother major economic indicator of Russias economic performance would be the Trade Balance. For the past foursome years, the trade symmetry of Russia has been performing remarkable as this economic indicator continues to increase from 2004 to 2007 due to the strong consumer demand and fixed capital shaping growth of the Russian economy. In 2004, the trade balance of Russia reached around 85.8 billion USD as the consequence of the increase of their non-oil exports by the end of 2003.The improvement of non-oil exports of Russia act to positively influence the trade balance of the said country for the come through years like in 2005, the trade balance increased by 23 billion USD while it increased by 22 billion in 2006 (The Federal articulate Statistics Office Service 2007 1) . Though thither was a slight growth in the trade balance of Russia during 2007 due to the signifi nett excess of growth rates of import above the growth rates of exports. zero(prenominal)ethe slight, the Russian economists is still optimistic regarding the performance of the trade balance of the Russian economy this year as their monetary and fiscal policies starts to set upon the said issue on trade balance.Inflation RatePrices of rock-steadys in Russia has been experiencing sluggish growth rate since 2003 as the result of the fiscal policies of the Russian government despite of the fact that they also have to humble shore their unemployment rate. Theoretically, if unemployment rate decreases, pomposity is being expected to increase based from the Philips Curve, simply with the fiscal policies of the Russian government such as the bilateral commercialize access agreement with the United States as a prelude to their likely entry to WTO, prices of domestic goods starts to d ecrease thereby creating a force for the inflation rate to settle since 2003 (Indexmundi.com 2007a 1).In 2004, the inflation rate was equivalent to 13.7 percent while it reached 11.5 percent in 2005 (Indexmundi.com 2007c 1). Though it increased again to 12.7 percent in 2006, inflation rate still managed to continue its good performance in 2007 by reaching 9.8 percent as the policies on regional monopolies and trade regulation of the Russian government starts to work on their economic system to stabilize the domestic prices of goods and services (Russiatoday.ru 2007 1).Unemployment RateAs the get along of caper opportunities in Russia continues to increase for the past years plus the bm of the Russian government to attract more than than opposed investors to their economy, unemployment rate starts to decline since 2004 with 8.5 percent unemployment rate. By the start of 2005, the Russian government already felt the positive impact of their rigorous action to provide more job opportunities to the Russian labor pool which resulted to the throw out deterioration of unemployment rate from 8.5 percent of 2004 to 8.3 percent of 2005 and then from 7.6 percent in 2006 to 6.6 percent of 2007 (Indexmundi.com 2007b 1).This only style that the Russian government has been successful for the past four years in combating the unemployment rate of their country which could further contribute to their impressive economic growth in the next coming years.Interest RatesOne of the closely concerns of opposed investors, following rate on borrowing in Russia exhibits good investment condition as it continues to decreases annually due to the stable financial sector of Russia for the past years after the financial crisis in 1998. The add rate or the interest rate on borrowing on Russia in 2004 was equal to 11.4 percent and decreased to 10.7 percent by 2005 as the Russian government started to implement economic reforms on their financial institutions in order to make their economy more attractive to foreign investors.As a result, with the stable financial sector and fiscal policies to attract more foreign investors, interest rate on borrowing continues to decline from 10.4 percent in 2006 to 10 percent in 2007 with accordance to Ordinance No. 1660 dated in February 17, 2006 (The Central Bank of the Russian Federation 2005 1). economical Strengths and WeaknessesBased from the leave behindn performance of Russias major economic indicators, it is clear that the line of reasoning environment in Russia is very much attractive and provides a better outlook in the next couple of years. Like for instance, the impressive growth of their GDP, it only signifies how active is the domestic consumption and investment level in the Russian economy and gives the investors a birds centerfield view of the realizable return to investment that the Russian economy could give to them.Moreover, despite of the fact that there were some periods wherein the Russian economy performs badly, but the point is, with the proper action of the Russian government, almost all of the economic problems was resolved and put the market back into its equilibrium condition.Another precedent of the strengths of the Russian economy would be the cheap borrowing in Russia as their interest rate on borrowing continues to declines for the past years in order to attract more foreign investors to their economy. This would provide further improvements on the investment sector of the Russian economy plus the possibility of increase in the number of job opportunities for the Russian labor pool.As a result, economic activity in Russia is expected to boost alongside with the improvement in the investment and labor sector of the economy. Most of the time, investors prefer countries that can offer cheaper loans in order to finance their business expansion in particular those multinational companies that aggressively finds more countries which could give them competitive advantag e any in a form of cheaper labor, loans, technologies, favorable government subsidies and other factors of proceeds to name a few.Furthermore, the effort of the Russian government to become less dependent on their oil exports in order to attain impressive economic growth by increasing the volume of their non-oil exports goods and services. This would provide an channel towards the attainment of sustainable growth on their trade balance.The fact that the Russian oil exports already provides large chunk on the total GDP of the country plus the improvement on the volume of their non-oil exports reflects the increasing social movement of their trade balance for the past years. Maybe this is one of the results of attracting more foreign investors in Russia which establishes manufacturing plants in Russia and then export the finished products to the international markets.The go but not the least strength of the Russian economy would be the increase in the number of job opportunities for their labor sector. This provides enough style for the Russian consumers to have more disposable income which reflects to the increasing domestic consumption of their consumers in the recent years.As a result of the increase in disposable income of the consumers, domestic investment becomes more profitable thereby attracting domestic investors to establish or expand their business. At the end of the day, both the foreign and domestic investors in Russia works hand in hand in order to utilize the Russian labor sector while on the other hand, it also provides an avenue towards the improvement per capita income of the Russians.One of the major weaknesses of the Russian economy would be the dependence on the foreign direct investments which could cause major damages on their economic stability once the financial sector in Russia becomes unsuitable to foreign investment. What the Russian government should do is to intensify their domestic investments in order to provide enough agen cy for their domestic investors to utilize the improvement made the foreign investors on the economic environment in Russia through rapid expansion and regulation of regional monopolies in order for other domestic investors to enter various industries. evaluation of the Government PolicyThe Ordinance No. 1660 which provides the further decrease of the interest rate on borrowing since 2006 serves to be one of the effective policies of the Russian government in order to make the Russian economy more attractive to foreign investors. Furthermore, this insurance policy only provides an impression to the foreign market how stable the Russian financial sector is since they manage to offer humble interest rates on borrowing to foreign investors. The Russian government is very much confident that they can sustain such policy since they possesses large amount of foreign reserves that can easily be liquidated in case of money shortages in the economy (Ignatiev 2007 1-2).The bilateral market access agreement with the United States as a prelude to their possible entry to WTO of Russia is also a good policy in further improving the stability of the Russian economy since this provides an avenue towards the attainment of take down inflation rate in the domestic market as cheaper goods from other country starts to enter Russia.At the end of the day, the domestic prices of goods and services in Russian domestic market, especially those from the regional monopolies, would be forced to lower down their prices in order to compete to imported products coming from other countries thereby creating enough room for the inflation rate of Russia to depreciate for the past year.Works CitedAlcarastore.com (2008). Russia GDP PPP and GDP Growth Rates 2003-2007 online. on tap(predicate) http//www.alacrastore.com/country-snapshot/Russia. Accessed 2 April 2008.Ignatiev, Sergey (2007). The Macroeconomic Situation and Monetary Policy in Russia online. lendable http//www.bis.org/review/r07060 8d.pdf Accessed 2 April 2008.Indexmundi.com (2007a). Russian Economy Profile 2007 online. on hand(predicate) http//www.indexmundi.com/russia/economy_profile.html Accessed 2 April 2008.Indexmundi.com (2007b). Russia Unemployment Rate online. Available http//www.indexmundi.com/russia/unemployment_rate.html Accessed 2 April 2008.Indexmundi.com (2007c). Russia Inflation Rate (Consumer Prices) online. Available http//www.indexmundi.com/russia/inflation_rate_(consumer_prices).html Accessed 2 April 2008.Russiatoday.ru (2007). Russia to miss 2007 inflation target Economic Minister online. Available http//www.russiatoday.ru/business/news/15319 Accessed 2 April 2008.The Central Bank of the Russian Federation (2005). Interest Rates in 2004 online. Available http//www.cbr.ru/eng/statistics/credit_statistics/print.asp?file=interest_rates_04_e.htm Accessed 2 April 2008.The Federal State Statistics Office Service (2007). Foreign Trade of the Russian Federation online. Available http//www.gks.ru/f ree_doc/2007/b07_12/25-02.htm Accessed 2 April 2008.Traveldocs.com (2008). Russian Federation Economy online. Available http//www.traveldocs.com/ru/economy.htm Accessed 2 April 2008.