How People are impacted from Financial Crises

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How People are impacted from Financial Crises

Introduction

The Russian financial crisis has been caused by the plummet of the Russian currency (Russian Rouble). Beginning in mid 2014, it has sparked fear countrywide over the possibility of affecting the lives of people. The financial crisis was known to have been caused by two major factors; the fall in prices of oil at the beginning of the year and the economic sanctions placed on Russia by other countries as well as international organizations. The crisis has not only affected companies but also consumers and families as a whole. Between November 18 and December 18, the rouble fell by more than 43 percent in value as a result of the drop in oil prices as well as the economic sanctions. Since the beginning of the crisis, consumer behavior has been significantly affected on a national scale.

Discussion

Some of the social impacts of the economic decline included a loss of confidence in the financial system by the people. Due to the decrease in the value of the rouble, there were doubts from Russian citizens as to whether the country was capable of restoring the value and thus increasing the social welfare and income. In addition, the level of optimism for the future, which is regarded as a crucial motivating factor, was seen to be low in comparison to the preceding years. This was because of the reduced employment opportunities presented at that time. The unemployment rates have begun to increase, especially for countries within the region that also depended on oil, such as Azerbaijan (Voskressenski).

A high rate of emigration because of job losses was experienced in the second half of 2014. The loss of value of the rouble made the payment systems to become unsustainable for them. The current number of Azerbaijanis living in Russia is approximated to be 3 million, and between June and December, more than 28,000 people had left for their country. On average, the real value of remuneration for workers in Russia was reported to have fallen by more than 4.7 percent between November and December 2013). The falling value of the rouble further caused a significant increase in inflation rates within the country. There was a decrease in purchasing power of commodities ranging from foodstuff to other necessities.

Aside from financial derailment, there were several social and psychological effects of the financial crisis. Psychological effects stemmed from the lack of financial resources that people could access to maintain the normal standards of living. The level of financial well-being also went down due to a sharp plummet in the levels of consumption. Credit ratings of Russia’s financial companies went down significantly because of the economic sanctions by the West Dabrowski. This resulted in a high level of difficulty to borrow loans from banks and other financial institutions. In addition to this, the risk profile of small and medium enterprises rose significantly, thus making it more difficult to attract both local and foreign investors. “Russia’s financial credibility is deteriorating, which affects the way international partners view the Russian companies with links to the state” (Karpia 17).

More than 20 percent of the Russian people are no longer able to afford to buy commodities they could afford before the crisis began. While some families were able to comfortably reduce on their overall consumptions, other households were unable to stay financially afloat and were thus forced to borrow more money. With the economic depression, the rate of lending became too low for the banks. More than 80 percent have been able to feel the harsh effects of the crisis, with some, especially those working in the oil sector, afraid that they may lose their jobs (Karpia 20). This is especially so given that economists have predicted a continued worsening of the financial situation in the near future.

Conclusion

The Russian financial crisis that began in 2014 has had significant negative effects on the people. It has been a result of economic sanctions placed by the West as well as the reduced oil prices. Low employment rates, rising economic inflation and the negative outlook for the future are some of the key effects of the economic inflation. This resulted in a fundamental shift in the economic engine, which involves wealth, consumption rates, business investment, and government spending, among others as the key elements. These factors have contributed to the deterioration of the financial situation of the Russian households.

Works cited

Dabrowski, Marek. “The Systemic Roots of Russia’s Recession | Bruegel”. Bruegel.org. N.P., 2016. Web. 19 Feb. 2016.

Karpia, Marka. “The Economic and financial Crisis in Russia: Background, Symptoms, and Prospects for the Future.” Center for Eastern Studies.

Voskressenski, Alexei Dmitrievich. “The World Financial and Economic Crisis and Its Impact on China-US-Russia Triangle”. Comparative Politics (Russia) 2.1(3) (2015): 70. Web.