Fragile Russian economy causes flight of world giants

DAILY SABAH WITH WIRES
ISTANBUL
Published

The Russian economy is struggling with an economic crisis due to falling oil prices, the devaluation of the ruble and the loss of a trade partner like Turkey. Eight global conglomerates have pulled out of the country within the last four months, and now a Turkish company, Pimapen, and Japanese firm Toshiba are also withdrawing from Russia. Russia is on the verge of one of the most dreadful economic crises in its history, and the dispute with one of its major trade partners, Turkey, was the tipping point after the European Union and the United States imposed economic sanctions on the country due to its military interference in Ukraine coupled with the drop in global oil prices.

Since the country's purchasing power weakened with the decline in its revenue gained from oil sales, the ruble has lost value against the dollar - which makes the country more vulnerable to crises. As a result, brands are withdrawing from the Russian market. For instance, two brands of General Motors, Opel and Chevrolet, stopped production in Russia, and South Korean automobile manufacturer Ssangyong also decided to stop all its sales in the country in September due to the downtrend in sales. This was followed by German Deutsche Bank, which ceased all its activities in Russia.

After Russia began imposing economic sanctions against Turkey, Turkish firms have also begun to withdraw from Russia. For example, the Kastamonu Entegre, part of Hayat Holding, suspended the construction of a wood panel factory in Russia's Kaluga region. On Monday, PİMAŞ - the largest PVC window manufacturer in Turkey - announced they will be closing their factory in Russia.

Russian sanctions on Turkish goods are a heavy burden on the Russian economy. The Bosch-Siemens factory in St. Petersburg had to suspend the production of washing machines since the products produced by Turkish sub-industry suppliers could not reach the factory due to the problems at customs. The boycott of Turkish goods is unsettling for the Russian automotive sector as well, as companies that are highly dependent on sub-industry products for the automotive industry cannot continue production due to the lack of spare parts deliveries. Russia had to retreat from its policies on the automotive sector to prevent a crisis, and allowed trucks, carrying Turkish sub-industry products to Russia, to enter the country. According to the Russian news agency TASS, St. Petersburg Industrial Policies Committee Chairman Maksim Meiksin said the trucks are being allowed through customs.

After embargoing the import of fruits and vegetables from Turkey, prices have surged. As of Dec. 7, there was a 4.4 percent increase in the price of cucumbers and a 6.6 percent increase in the price of tomatoes.

Inflation rates have boomed in Russia, and the citizens and tradesmen are waving red flags. A survey investigating whether Turkey should be punished due to the incident where it shot down a Russian fighter aircraft found that 63 percent of the participants answered "no." Furthermore, the drivers of heavy vehicles shut down some federals roads, including Moscow Ring Road, in order to protest the newly imposed road tax. According to this tax regulation, vehicles heavier than 12 tones have to pay a road tax for each road they use, which means an additional 2,200 rubles ($35) per road used for each one-way journey.

The Russian economy shrank 4.1 percent year-on-year in the third quarter of 2015, in line with the preliminary estimates, which followed a 4.3 percent drop in the previous period. Additionally, Russia's gross domestic product (GDP) could fall 5 percent or more in 2016 if oil prices continue to stay below $40 per barrel, according to the Russian Central Bank. The bank stressed in its Guidelines for the Single State Monetary Policy for 2016-2018 that inflation would stay within 7 to 9 percent in 2016.

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