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Russian Producer Price Index Remains Elevated

James Boston
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Russian Producer Price Index Remains Elevated

Russia has just published an update to it’s Producer Price Index (PPI) data for the month of June. The indicator is showing 8.9% growth year on year in line with the May reading, there was a market consensus expectation for a level of 5.3% to be reported.

The International Monetary Fund (IMF) has issued a very negative outlook for the Russian economy. Reiterating growth forecasts of just 0.2% and 1.0% for this year and next, the IMF cited underinvestment in economic reform as a key risk for the flagging Russian economy.

Rising energy prices have masked much of Russia’s economic troubles over the past couple of years and a move away from a reliance on this sector of the economy has proved too gradual to offer any meaningful growth prospects. According to a recent IMF report, Russia needs to diversify it’s economy away from energy and also needs to develop more robust international trade links.

The Ukrainian crises has very much come at the wrong time for the Russian economy. The imposition of international sanctions at the beginning stages of the development of a global trade program obviously proves problematic. The real issue however is the lack of investment in alternatives to an energy based economy. The international assets of many of the Russians that would be in a position to invest have been frozen in response to countries activities in The Ukraine, in parallel international investment in Russia has all but dried up as global investors fear reprisal.

Russia is in the fortunate position of having access to a healthy sovereign wealth fund built up over years of oil production. This can provide a stop gap in the absence of private investment but the IMF has cautioned against it’s use for this purpose as the economy is unlikely to provide an efficient response to this investment, Russia’s current economic problems are geopolitical in nature and not caused by the economic cycle.

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