Russian market contracting rapidly

ANDERS ASLUND*

What is your forecast on the future of the EU-Russia trade ties in the shadow of sanctions policy?

EU-Russia trade is falling dramatically this year. The reason, however, is not western sanctions or Russia’s countersanctions on foods, but that Russia’s GDP in US dollar terms has fallen from $2.1 trillion last year to $1.2 trillion this year, which is a consequence of the halving of the oil price on the world market. The Russian ruble falls in line with the oil price, so it has almost halved in one year. In recent years, oil and gas have accounted for two-thirds of Russia’s exports. Given that these prices have fallen by half, one-third of Russia’s exports have disappeared. So far this year, Russia’s exports have fallen by 30 percent, and imports by 40 percent, and Europe’s exports to Russia have fallen by about 40 percent. Since the Russian market is contracting so fast, all international companies, including European ones, are cutting down their engagement in Russia. The financial sanctions matter because they compel Russia to increase its current account surplus and thus reducing imports even more than exports because Russia has minimal access to international funding.

Germany has long dominated EU trade with Russia. Its exports to Russia fell by “only” 30 percent in the first half of this year, but Russia’s share of Germany’s exports have shrunk from 2.7 percent in 2014 to 1.7 percent in 2015. As the 15thbiggest economy in the world at current exchange rates, Russia is not such a big factor.


*Senior Fellow, Eurasia Center, Atlantic Council