Russian GDP Continues to Contract at Double Digit Pace

The Russian Federal Statistics service reported Q2 GDP figures today, which aside from proving Joe Biden to be a prescient economic seer (he described Russia's economy as "wilting" just a couple of weeks ago) , showed the country's gross domestic product contracting at an annualized -10.9%. As illustrated by the chart above, Russia's international reserve position has stabilized over the course of the year as oil prices have hovered in the $70/bbl range. Furthermore, despite Russia's vocal assertions that it is in favor of special drawing rights (SDR's) as a way of diversifying away from USD exposure, gold seems to have been a primary beneficiary of reserve re-balancing. Russian gold holdings are still too small to make a significant visual chart impact, but they have increased the value of gold in reserve by $2.5B or ~17% since the start of the 2009.

We suspect that Russia has reached a critical point of sorts with regards to the contraction of it's domestic economy, and it's stated international reserve position. Unless these double digit annualized GDP contractions moderate substantially, Moscow may come under political pressure from an unruly populace to extend or create social benefit programs. Such a move would necessitate the use of the country's reserves for funding, as the price of oil is currently at a level which is barely sustainable to run the government's primary functions. Obviously, this all assumes that the global economy does not perform a double-dip; pushing oil prices further down, and compelling Moscow to deplete it's international reserves further. Sphere: Related Content