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Why Economic Growth in Russia Fell by 4.3% in September

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Russia GDP fell in September

According to the Federal Service of State Statistics, the gross domestic product (or GDP) of Russia has fallen 4.3% for the third quarter, slowing to -3.8% in September. GDP fell 4.6% in August 2015. With shrinking GDP, Russia-focused VanEck Vectors Russia ETF (RSX) and the Direxion Daily Russia Bull 3X ETF (RUSL) were down 20.6% and 71.6%, respectively, from a year ago as of October 19.

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Decreasing exports led to a fall in GDP

Export trade contributes about 28.6% of Russia’s GDP. Russia is a major exporter of energy products. Exports of crude oil, petroleum, and natural gas account for about 68% of total export revenue. Crude prices have fallen about 13% since the beginning of the year. Falling oil prices have adversely impacted exports, which have fallen about 39.0% in August 2015 from a year ago. Also, sanctions from the US and Western nations are still in place, which has further impacted Russia’s economic growth.

Energy stocks such as Rosneft (OJSCY), Gazprom (OGZPY), LUKOIL (LUKOY), and Surgutneftegas (SGTZY) have fallen 38.7%, 34.8%, 23.9%, and 11.4%, respectively, over the past year as of October 19.

Russia’s retail sales fell to 10.4% in September

Russia’s retail sales continued their declining spree. Retail sales decreased 10.4% year-over-year in September as against a drop of 9.1% in August 2015. The 9.7% decline in sales of food and tobacco and in non-food items by 10.9% were the primary factors in the decline.

Declining crude prices and sanctions from the West are adversely impacting the Russian economy. Rising inflation and the depreciating ruble are further deteriorating consumer sentiment. Policymakers in Russia need to implement various monetary and fiscal policies to help the economy regain strength.

Like Russia, Brazil is also faced with high inflation and sluggishness. Let’s see how the business climate is in the Brazilian economy in the next article.

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