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 4.8% in June on a year-over-year basis. The Russian equity–tracking VanEck Vectors Russia ETF (RSX) was down 1.6% on July 15—on the negative indicator reading. The iShares MSCI Emerging Markets ETF (EEM) has about 4% exposure to Russian equities. It was down about 1.1%. These funds have yielded 21.80% and -2.39%, 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. Russia 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). Though oil prices have seemed to be recovering lately, the Iran nuclear deal, has again cast doubt on the rising trend, adding much volatility to the commodity market.
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. Are the central bank’s rate cut decisions enough to stimulate the sinking economy, or does the Russian economy need more?