Low industrial production adds to Russia’s woes
Russia’s woes have only deepened with the Federal State Statistics Service releasing industrial output figures for May. Industrial production in Russia declined by 5.5% in May on a YoY (year-over-year) basis. However, the Russian equity tracking VanEck Vectors Russia ETF (RSX) was up 1.51% on June 16—despite the negative indicator reading. The iShares MSCI Emerging Markets ETF (EEM) has about 3.7% exposure to Russian equities. It also gained 0.03%. These funds have returned 28.50% and 1.30%, respectively, this year.
Russian industrial production has been hit by western sanctions
The Russian economy has seen a slowdown over the past year amid a global drop in oil prices. Oil exports are the backbone of the Russian economy. It derives about 50% of its budget revenue from oil and natural gas industry taxes. With the oil price drop, Russian oil firms’ revenue took a hit—like Rosneft (OJSCY), Lukoil (LUKOY), and Open Joint Stock Company Gazprom (OGZPY). However, oil prices are now recovering.
Currently, Russia is also combating the negative consequences of the western sanctions. They’re depleting export revenue—not to mention the flight of capital from the country.
Key rate down to 11.50%
In an attempt to revive the reeling economy, the Central Bank of Russia announced yet another rate cut on Monday, June 15. Russia’s key interest rate is now down to 11.50%. Are the Central Bank’s rate cut decisions enough to stimulate the sinking economy or does the Russian economy need more?