Russia and Brazil are struggling.\u00a0 Trouble has been brewing for a while. High inflation and big currrent account deficits meant exports were too cosrtly; their currencies topped the list of those likely to tumble. The Russian rouble, has fallen far.\u00a0 The central bank scaled back its expensive and futile efforts to prop the currency up, leaving it floating almost freely.<\/p>\n
Brazil and Russia are in really bad shape. The largest emerging economies after China, together they have the heft of Germany. In both countries the currency is sliding. The real hit new lows in November after data revealed the budget deficit reached a record in September. The rouble is dropping faster, down 27% in a year and 10% in the past month. Both face stagflation: bubbly prices coupled with growth rates likely to be below 1% this year.<\/p>\n
Some of their pain comes from abroad. Brazil\u2019s main trading partners are slowing (China), stagnant (the euro area) or tanking (Argentina). Not only are export volumes down; the prices of things Brazil sells\u2014iron ore, petroleum, sugar and soyabeans\u2014are dropping as global demand falters. Russia is feeling the slowdown too, as energy prices fall. It is one of the world\u2019s biggest producers of oil and natural gas. Its big five energy firms employ close to 1m workers. Exports worth $350 billion flowed through pipelines to Europe and Asia in 2013. As prices drop, Turkey\u2019s gain is Russia\u2019s loss.<\/p>\n
But Brazil and Russia\u2019s problems have domestic roots too. Since the 1990s Brazil has tended to aim for a primary surplus (before interest payments) of close to 3% of GDP\u2014enough to begin reducing its debts. But Dilma Rousseff, the newly re-elected president,\u00a0has played havoc with Brazil\u2019s public finances.<\/p>\n
Russia\u2019s self-inflicted wounds are even more severe. Vladimir Putin\u2019s invasion of Ukraine led to American and European sanctions that have been gradually tightened since they were imposed in July. The rules limit Russian firms\u2019 access to American debt markets. They also ban American firms from selling kit or advice to Russia\u2019s energy giants. This prevents western oil firms from helping Russian ones develop oil- and gasfields. Mr Putin\u2019s retaliation\u2014import tariffs on Western goods\u2014has pushed up domestic prices further.<\/p>\n
There could be worse to come. The drop in commodity prices looks set to last. Meanwhile, in order to crimp inflation and stem the slide in their currencies the central banks in both countries raised their rates last month: they stand at 11.25% in Brazil and 9.5% in Russia. At the same time, worried finance ministries are keen to bolster their books. In Brazil, fuel-tax hikes are being mooted, and tax breaks on car purchases may be scrapped. In Russia a rule that caps the budget deficit at 1% of GDP may require austere fiscal policy.<\/p>\n
Banks could prove vulnerable as public-sector spending cuts hit incomes and high interest rates make loans hard to service. In Russia things are particularly bad: non-performing loans are rising, and savers are draining the banks of roubles.<\/p>\n
Bond markets could be another flashpoint. Both have big foreign-exchange reserves: despite losing around $100 billion in the past year, Russia has close to $370 billion. But they also have big dollar debts that become harder to serve as their currencies fall. Pessimists see tumbling currencies, bond-market routs and even bank runs.<\/p>\n
Russia and Brazil are struggling.\u00a0 Trouble has been brewing for a while. High inflation and big currrent account deficits meant exports were too cosrtly; their currencies topped the list of those likely to tumble. The Russian rouble, has fallen far.\u00a0 … Continue reading ![\"Russia's](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2014\/11\/Russias-Problems-300x193.jpg\")
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