The American and Canadian stock markets and major indices continue to trade near record territory. Data out of both countries suggest that economic growth is gaining traction.
But the same can’t be said for the rest of the world. The Eurozone is on the brink of slipping into a recession after a closely watched economic indicator in Germany, the region’s biggest economy, fell more than expected—to its lowest level since 2012.
Germany slipping into a recession would have serious implications for the rest of the Eurozone—especially France, the second biggest economy in the region, and Italy (the third), both of which rely heavily on Germany for trade—that’s in worse financial shape than Germany.
Now there is word that Russia is on the brink of a recession. The U.S. and the Eurozone have imposed sanctions several times on Russia after it annexed Crimea in March and backed separatists in eastern Ukraine. The sanctions tightened restrictions on major Russian state banks, corporations, and the energy sector.
Many believed the easing of tensions in Ukraine would help put an end to international sanctions, but that didn’t happen. In fact, the relative calm in the region has done little to help Russia, as the lowest oil prices in more than two years threaten to send the world’s largest energy exporter into recession. That’s because Russia relies on oil and gas for around two-thirds of its exports and gets about half of its budget revenue from oil and natural gas taxes.
According to reports, Russia needs Urals, its primary export crude blend, to trade at $100.00 per barrel (or higher) to avoid a recession. Urals fell below $100.00 a barrel on September 21, 2014 for the first time in 15 months; and by the end of the week, had slid to around $93.00 per barrel—its lowest level in more than two years. (Source: Tartar, A., and Andrianova, A., “Russia Risks Recession as Oil Drop Seen Squeezing Budget,” Bloomberg Businessweek, September 26, 2014; www.businessweek.com/news/2014-09-25/russia-risks-recession-as-oil-drop-seen-squeezing-budget.)
The weakening Russian economy is also hammering the ruble, its currency. The Russian ruble currently trades at 39.10 against the U.S. dollar and 35.06 against the Canadian dollar. The Russian ruble has now fallen as much as 20% since the beginning of the year.
After being supported by oil and gas income, the Russian economy is staring a recession in the eyes. So far this year, an estimated $75.0 billion worth of capital has left Russia. This, after the Russian economy grew just 1.3% in all of 2013 and did not grow at all in the second quarter of 2014. (Source: “How far do EU-US sanctions on Russia go?” BBC News Europe, September 15, 2014; www.bbc.com/news/world-europe-28400218.)
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