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Russia's Foreign Reserves Have Stopped Declining

There's all sorts of economic data coming from Russia: good and bad, ugly and pretty, positive and negative...  

Here is one positive:

  • Russia's Forex reserves are going up again
MORE: Business

This article originally appeared at Forbes


I’ve written before that Russia’s economy at the moment is such a contradictory and confusing mixture of good and bad data that people can (and often do!) project virtually any narrative onto it.

<figcaption>Most of April, Russia’s reserves continued to tick downward, hitting their lowest level since the spring of 2007. This suggested that the country still had not fully adjusted to the “new normal” of relatively cheap crude oil and a relatively weak ruble</figcaption>
Most of April, Russia’s reserves continued to tick downward, hitting their lowest level since the spring of 2007. This suggested that the country still had not fully adjusted to the “new normal” of relatively cheap crude oil and a relatively weak ruble

Back in April I looked at the international reserves and how, despite some modestly good news on the output front, they were still decreasing at a worrying clip. During most of April, Russia’s reserves continued to tick downward, hitting their lowest level since the spring of 2007. This suggested that the country still had not fully adjusted to the “new normal” of relatively cheap crude oil and a relatively weak ruble.

Then, a few weeks later, it turned out that the output news actually wasn’t all that good good after all. After reasonably solid readings in the first quarter, in April industrial production fell off of a cliff. Total output fell by 4.5% with manufacturing accounting for virtually all of the decline (commodity production was essentially unchanged, and output from utilities actually grew). That was a nasty and unexpected jolt to an economy that looked as if it might have been on track to emerge from recession before the end of 2015.

Well in further confirmation of Russia’s recent trajectory of one step forward one step back recent data from the Russian Central Bank show that the country’s international reserves have finally stopped decreasing. Since bottoming out in mid April at $350.5 billion, Russia’s reserves have slowly increased every week since, hitting $362.3 billion on the week ended May 15th.

 

The fact that Russia’s reserves have started to slowly recover does not undo the bad news from April, but it hopefully attests to the complexity of the current situation and the fact that there is no clear, easy narrative to explain what’s happening. To put things a bit simplistically, the April industrial production data showed an economy that was in need of some kind of jolt but the data from the Central Bank show that Russia is in a (slightly!) better position to do so.

That, of course, could change. There was a period of time in November, December, and January in which virtually all of the data coming out of Russia was uniformly terrible. Output, international reserves, inflation, the ruble: everything was heading (quickly!) in the wrong direction. It was hard to find much of a silver lining.

As of now that’s simply not the case. Output is on a downward trajectory but inflation is also moderatingUnemployment is going up, but, at the same time, Russia’s international reserves are rebounding. The ruble has recouped some, but by no means all, of its losses against the dollar. This doesn’t mean that Russia’s economy is some kind of hegemon in waiting, as I hope the above has made clear it is in quite a fragile situation at the moment, but it does suggest that what is happening is not a simple tale of recession and imminent collapse.

It would be great if there was a simple narrative into which one could fit Russia’s current economic situation. But there isn’t. Good, bad, ugly, pretty, positive, negative: it’s all there. The only thing we can do is wait and see what further data suggest about the country’s overall trajectory.


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