Comparison of Macroeconomic Indicators of the United Kingdom and Russian Federation

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ABSTRACT

Comparison of Macroeconomic Indicators

of the United Kingdom and Russian Federation

Abstract

The current essay reviews economies of two large countries: the United Kingdom and Russian Federation. These countries have a great impact on economic processes in the world - each in its specific way. The main differences of economic systems of the two countries including GDP and GDP growth rate, exchange rate, interest rate of short-term government debt, unemployment rate and trade deficit will be analyzed. Exactly these countries were chosen because they are totally different in their economic entity. Post soviet Russia finishes its transition from a planned to a market economy while Great Britain is a developed country, one of the first countries that started using a free-market model of economy and was the major trade power in the world for centuries. In its turn, Russia has always been an exporting country of natural resources and agricultural products. Now, regardless of the USSR breakup and total change of Russia's development mode, the trend is still the same as it was nearly twenty-five years ago. The UK is still the main player on stock markets and one of the centers of heavy and light industries, banking, investments, and services market overall while Russia exports gas, oil, coal, steel, etc. Russia plays a great role in the world not because of development level of its market and high standards of production but mostly because of its subsoil. Therefore, the comparison of two such different economic systems will be the best choice for examining and research.

economic exchange rate unemployment

GDP and GDP Rate Growth

With regard to GDP rate, it is important to say that economies of both countries are constantly growing. For the last decade, the only year that was unsuccessful and shown a fall in GDP was 2009, the world crisis year. Starting from 2010, both economies recovered and continued their growing. Speaking about Russia, its real GDP has grown from $210 billion in 2002 to more than $1.9 trillion in 2013. The growth (fall) of GDP during these years was as follows 2002 - (4.7%), 2003 - (7.3%), 2004 - (7.2%), 2005 - (6.4%), 2006 - (8.2%), 2007 - (8.5%), 2008 - (5.2%), 2009 - (-7.8%), 2010 - (4.5%), 2011 - (4.3%), 2012 - (3.4%), 2013 - (1.3%). Therefore, the highest growth was in 2007 (8.5%), and the biggest fall was in 2009 (-7.8%) due to the world economic crisis. Since then, there is the trend of slow growing of GDP (Russian Federation Federal State Statistics Service, n.d.).

In the UK, GDP was growing slower than in Russia and in 2008-2009 it has also suffered from crisis, but eventually, it has shortly overcome it. Here are the main indicators of the UK real GDP and its growth (in brackets) for the last eight years: 2005 - $2.402 billion (3.2%), 2006 - $2.468 billion (2.8%), 2007 - $2.552 billion (3.4%), 2008 - $2.533 billion (-0.8%), 2009 - $2.402 billion (-5.2%), 2010 - $2.442 billion (1.7%), 2011 - $2.469 billion (1.1%), 2012 - $2.474 billion (0.1%), 2013 - $2.521 billion (1.9%). It can be seen that British economy is slowly recovering from rapid fall in 2008-2009 (Office for National Statistics, 2014).

Exchange Rate

Generally, the UK pound is one of the most stable currencies in the world. It is supported by a powerful economy based on internal and external investments and huge tax incomes from big enterprises along with small and medium businesses. From the end of 2001, GBP/USD was 1.4479 and just till 2007 GBP was constantly going up and eventually, reached its peak in November of the same year (GBP/USD 2.0926). After that, it began to fall. The biggest fall was between July 2008 and November 2008 (from 1.8456 to 1.5339 GBP/USD). Since that time, as the UK has been recovering from crisis, the GBP/USD exchange rate is constantly fluctuating and there is no any trend for pound to fall or go up for now (Bank of England, n.d.).

As to Russian ruble, the situation is almost the same as in case with GBP. It has been rapidly going up towards USD and reached its peak in the middle of 2008, and then rapidly fall. The only difference between RUR/USD and GBP/USD is that pound was going up slowly and systematically while ruble was `jumping' up and down. That continued till 2008, when Russian stock instantly collapsed and ruble began to decline. Now, it is relatively stable, although last month's trend shows that ruble slowly cheapens (The Central Bank of the Russian Federation, n.d.).

Inflation Rate

In the UK, inflation rate was lightly fluctuating between 1-3% from 2002 until 2007, just until it reached 5% in 2008. For a short period of time, it has fallen to 1% but soon it again started to rise and in the end of 2012, it was 5% for the second time in four years. Now, the UK inflation is considered to be `calm', and since 2012 until January 2014, it has been floating between 2-3% (Organization for Economic Cooperation and Development, n.d.).

Situation with the inflation rate in Russian Federation is completely opposite. While British inflation during last ten years was relatively stable, Russia has survived a period of systematical dropping. In 2001, inflation rate in Russia was about 25%; in 2003, it was already 15%; in 2005 - 10%; and it has eventually fallen to 7% in 2007. As it was with most countries in the world, it has rapidly increased to 15% in 2009. Now, trend shows that inflation in Russia is decreasing and fluctuating between 4-6% since 2010 until now (Inflation Rate of Russian Federation, n.d.).

Interest Rate

In the United Kingdom, interest rate was steadily fluctuating between 6% in 2001 and 5% in 2009, then it has rapidly fallen to 0.5% and it has not changed since then. Obviously, the world economic crisis greatly influences it. In Russia, interest rate starting from the end of 2003 and until the beginning of 2008 was stable - 6.2%, then it was slowly growing and reached its top at 10.2%. Later on, there was a rapid fall after which interest rate was set at 5.25% and remaining at that level until the middle of 2012 when it was at 5.5%. That rate remains the same now. The forecast for the near future is 8.85% (Lambert, 2014).

Unemployment Rate

In the UK, from 2001 until the beginning of 2008, unemployment rate was stable because of its economic and financial stability and fluctuated between 5-6%. After 2008, it was rapidly growing to 8.4% in January 2008, and in December 2013 it was already 7.1. Thus, due to economic recovery, a positive trend of employment can be observed (Wearden, Fletcher, 2013).

In Russia, there was unemployment rate of about 10% in 2001, after that it started to fall slowly with sharp fluctuations from 7% to 9.5% until 2004, and then there was another period of fluctuating - in March 2008 it was at 5.5%. Afterwards, economic crisis stroke and in the middle of the same year, unemployment rate in the country was already 9.5%. After 2009, it began to fall and the actual rate is 5.3% (Trading Economics, 2014).

Trade Deficit

Russian Federation does not have a trade deficit but it has surplus. In 2001, it was near $5 billion and in January 2008, it has already grown to almost $18 billion. In 2009, it has fallen to $4.9 billion and it has reached its peak - $20 billion together with other positive trends in Russian economy. After inconsiderable growth in import and increase in military expenditures, current Russian trade surplus is $15.7 billion (Rapoza, 2011).

In case of the United Kingdom, the trend has been stable since 2001 and till now. It has not a surplus but its deficit is small and steadily fluctuating the whole last decade between Ј1 - 4 billion, and only showed small surplus in 2011 when it reached almost Ј3 billion. In December 2013, it was Ј1 billion (Trading Economics, 2014).

Speaking generally about Russia, its main strength is big trade surplus from oil, gas, coal and military export which makes it less vulnerable to international economic shocks. While its heavy and light industry is supported by resources and have no need in importing them from abroad, the unemployment rate in Russia is comparably low, which is definitely a strong side of the economy of the country. Other strength is GDP growth - large population and industrial potential, as well as constant flow of immigrants from the Middle Asia, will be the main factors of the future rise of Russia as a world superpower, which now seems really possible. Exchange and inflation rate are the major weaknesses as the country depends more on export of raw materials rather than on technological development and services market, and such correlation often strikes national currency - ruble. Another weak side of Russian economy is high interest rate - it makes life of debtors, including small and medium businesses, much harder as thus investments flow into the country slowly, internal business has to raise the price for their goods of services, and that, in its turn, hits customers and clients - simple Russian citizens.

Strengths of the UK are interest and exchange rates, and trade deficit, so almost directly opposite to Russia's. Mainly it's due to pound hardness. Low interest rate makes better conditions for the development of business in the country. That eventually enriches state budget. GBP has always been a stable national currency, that makes people not only from Britain, but also from many other countries to maintain their deposits in pound - so they consider it reliable. And that's why exchange rate is stable and it is the strong side of the UK economy. Trade deficit is not such a strong side as in case of Russia, but for the huge scales of British economy, trade deficit of 4 billion is not so big and it means that the country doesn't need pay much money from the state budget in order to cover that deficit. Weak sides are unemployment rate after world crisis, inflation caused by big state budget deficit, and GDP slow growth. The last one - because of fall of the real-estate market and services market after mentioned above world crisis.

Conclusion

In conclusion, the data from the research of the specific features of Russian Federation and the UK economic indicators was more than enough to understand the entity of their economic models. As it can be seen, Russia is a huge player on the world arena because of its human and natural resources, not to mention the Soviet Union heritage - large industrial basis. Oil and gas deposits seem to be inexhaustible as most part of the country's territory is yet undiscovered for new sources of energy. In this situation, Russia as the biggest resource-holder in the world will stay in a leading position in economy and geopolitics for a long time. Trend also proves it because for the last ten years, Russia has transformed from almost third-world country with thousands of nuclear warheads to a powerful country that is rapidly developing and dictates its rules of the game to the UN. Great Britain which does not possess so much gas and oil is still on top with its high GDP, innovative industry, technologies, free market, and the highest standard of living. A lot of money annually flows into its budget and it is constantly developing, although GDP growth rate is not as high as, for example, in China. But now, as world has almost recovered from the crisis of the last years, the UK has a chance to eliminate its trade deficit and perform a new high-quality level of development to hold its major position on the world market as it was for centuries.

References

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