The fall in Russia's export earnings is one of main causes of present economic contraction, but even so the Ruble remains stable against the dollar even as domestic inflation surges
This article originally appeared at Seeking Alpha
Economic growth in Russia continues to fall.
Moreover, rising inflation measures are weighing on consumer spending.
Even as its economy weakens, the Russian ruble is stabilizing against the U.S. dollar.
Economic growth in Russia continues to fall as exports and consumer spending decline. Investors, however, continue to buy the ruble as current economic weakness is priced in.
In March, the economic growth figure came in at an annual pace of -3.4% contraction, down from the previous month's reading of -2.3%, while also exceeding estimates for -2.0%. The economic growth measure is a monthly leading indicator reported by the Ministry of Economic Development. Since peaking at over 5% annual growth in 2012, economic activity has fallen sharply lower, seen below.
Declining exports have been one of the largest weights on economic growth. In March, the export figure came in at an annual pace of -11.29% contraction, down from the previous month's reading of -7.94%. After reaching over 30% annual growth in late 2011, exports have fallen significantly lower, to current levels. Export revenue to Russia has fallen in recent months as energy prices declined, alongside weaker demand from the global economy.
Moreover, a steep decline in the country's currency last year pushed price measures higher. In March, the inflation figure came in at an annual pace of 16.9%, up from the previous month's reading of 16.7%, while also exceeding estimates for 16.8%. After starting 2014 at close to 6% annual growth, inflation measures have nearly tripled, seen below. Food and beverage costsare a large reason for elevated consumer prices.
"Year-on-year, cost of food and non-alcoholic beverages recorded the highest increase (25.9 percent from 26.1 percent in February).
Cereals and legumes increased 52.9 percent; sugar price went up 50.5 percent; fruit and vegetables advanced 38 percent and cost of fish and sea products increased 33 percent," according to Trading Economics.
Finally, as consumer prices have risen and economic growth slowed, household spending declined. In March, the retail sales figure came in at an annual pace of -0.12% contraction, down from the previous month's reading of 0.96%. Retail sales are quickly approaching lows not experienced since the depths of the 2009 world financial crisis, seen below.
While Russia's economy continues to weaken, its currency is moving higher against the U.S. dollar. Economic growth is slowing alongside lower export revenue. Moreover, rising inflation has cut off consumer spending. Much of this, however, has already been discounted in the price of the ruble. Until further headlines emerge that threaten growth in Russia, its currency will likely trade sideways, if not strengthen against the U.S. dollar.