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The Russian economy is slowing

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It may be hard to believe, given the recent market rally and oil prices moving as they have, but Russian growth is slowing down again. The fact is that Russian GDP is married to oil primarily as an export to be exchanged for foreign capital, and only secondarily as an industry in itself. But as a result, when foreign capital flows reverse on their own, all the oil in the world cannot fill the gap. That seems to be what is happening now. While Vladimir Putin expected Russian GDP to expand at an annualized rate of 4.2% -- although reports before the fact quoted a number of 4.4% -- the morning print only came in at 4.1%. This is a significant slowdown from the 4.5% rate we saw last quarter, and when you compare it to the 10% growth that president Medvedev, for one, wants to see the country produce, it is a significant disappointment. Regardless, the truth here is that Russia lost $21.3 billion in overseas capital last quarter. Coming after 2010's $38.3 billion in outflows, that represents an enormous amount of money fleeing the ruble economy. In the face of flows like that, even oil at $100 a barrel is not enough to keep the frozen Russian monetary system fueled. While the oil exporters are bringing some liquidity to the economy, we are still a long way from the environment where Russia was growing 7% a year. If anything, Russian freight traffic is still 10% under where it was before the credit crunch. This is not really a bullish signal for Russia ETFs like RSX ( quote )

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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