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Author`s name Dmitry Sudakov

Russian economy outstrips U.S. mortgage crisis and declining dollar

The outgoing year was a troublesome and even an extreme period for the global economy. Economic shocks that occurred during the year 2007 – the U.S. mortgage crisis, the growing oil prices – may develop into the financial and credit crisis caused by the declining economy of the United States.

The economic situation in Russia looks positive against such a background. The overall economic growth in 2007 made up about 7.5-7.7 percent, which is quite acceptable for the country attempting to replace the oil and gas dependant economy with a new model.

The crisis caused with the collapse in the sub-prime sector of the mortgage market currently dominates over the U.S. economy putting an immense pressure on its further development. It is worthy of note that the reduction of prices on real estate in the USA was initiated in 2006. However, the trend developed into a crisis only in 2007.

The mortgage crisis in the USA made world’s largest banks suffer billion-dollar losses. The U.S. mortgage system is deeply integrated into the world financial market. The American economy found itself in a very difficult situation against the background of the mortgage crisis and other long-standing economic problems. The Federal Reserve System was forced to reduce the interest rate from 5.25 to 4.25 percent which did not bring any positive results. Moreover, the threat of inflation increased in the USA, which in its turn may develop into stagflation against the background of the ongoing economic setback.

The unprecedented reduction of the dollar rate is another significant economic event of the outgoing year. On the whole, the weakening dollar plays a positive role for the U.S. economy. It reduces the amount of its foreign debts and raises the competitive ability of U.S.-made products. However, the weak dollar unbalances the oil market and reduces the interest in U.S. assets.

The year 2007 was a very important period for the oil market. Current oil quotations demonstrate the chaos and disorientation on the markets of capital. The unstable state of affairs on world’s basic stock markets raises the speculative course of oil. The speculation can only make the oil market riskier for investors, sellers and consumers.

The Russian economy exercised the maximum growth over the recent seven years. The GDP gained 7.7 percent, whereas the investment volume increased by 20 percent. The growing investments can be explained with the inflow of the foreign capital in the Russian business.

The year 2007 has been marked with unprecedented consumer boom in Russia. On the other hand, the majority of Russians consume presumably foreign-made products. The import of goods increased by over 35 percent, whereas exports gained only 15 percent.

Recent events in the U.S. economy show that the issue of consumption starts to lose its dominating positions in the society. It does not mean that the level and the character of consumption in the USA, EU and other wealthy states will drop to the consumption level of Africa or South-East Asia. However, it will not remain the same either. The mortgage crisis in the USA clearly shows that there is no place for miracles in economy. There is no loan and no mortgage that can allow a person to own things which he or she cannot earn.


Translated by Dmitry Sudakov

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