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Unemployment Fell in Russia, Yet RSX Is Down on Oil Woes

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Nov. 20 2020, Updated 10:57 a.m. ET

Unemployment rate in Russia edged down in July

According to the August 19 release of the Federal Service of State Statistics, the unemployment rate in Russia edged down by 0.1% to 5.3% in July. Unemployment in Russia has been declining gradually since April this year. The rate had reached 5.9% in March 2015.

However, the news wasn’t enough to turn investor sentiments positive towards Russia amid the oil price plunge. The VanEck Vectors Russia ETF (RSX), which tracks Russian equities, was down 2.79% on the August 19 close. The ETF is down 11.51% over the past month, as oil continues to slide. The iShares MSCI Emerging Markets ETF (EEM) has about 3% exposure to Russian equities. It was down about 1.24%. The decline in oil prices also has a huge negative impact on Russia (RSX).

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Russia is reeling under the decline in oil prices

The Russian government derives about 50% of its budget revenues from taxes from the oil and natural gas industry. About 25% of the country’s GDP is linked to the energy industry. Oil exports form the backbone of the Russian economy. With the oil price drop, the revenues of Russian oil firms such as Rosneft (OJSCY), Lukoil (LUKOY), and Surgutneftegas (SGTZY) have taken a hit.

To add to this, Russia (RSX) is also currently struggling with Western sanctions along with depleting export revenues, not to mention the flight of capital from the country.

Are rate cuts enough to revive Russia?

In an attempt to revive the reeling economy, the Central Bank of Russia has been announcing subsequent rate cuts with the latest cut on July 31. Russia’s key interest rate is now down to 11%. While the Central Bank of Russia is cutting interest rates to boost growth in the economy, oil prices continue to decline, putting pressure on the economy’s key source of revenue.

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