In the second quarter of the year, Russia’s economy expanded by 5.2% from a year earlier and has been gaining strength; however, harsh weather conditions could hinder future growth in the Kremlin.
Russia’s recent economic growth has primarily been accelerated by sizable increases in retail sales and investment as well as healthy commodity prices.  In June, retail sales in Russia saw their largest jump in nearly two years as unemployment levels continued to descend and consumers loosened the grip on their wallets.  Additionally, the price of Urals, Russia’s export blend of crude oil, was nearly 31% higher in the second quarter of this year when compared to the year-earlier period.  This is significant because oil and gas are one of Russia’s largest exports and fuels the nation’s economy.  In fact, the Federal Customs Service stated that energy accounted for 72% of all exports to the Baltics and countries outside the former Soviet Union in the first half of the year.
Other signs of a healthy economic recovery are illustrated through increased bank lending volume, with corporate loans increasing 2.1% and retail lending gaining 1.6%, reported the central bank.   Lastly, real disposable income in the nation continues to increase giving positive support to increasing purchasing power of the nation’s citizens.
Although Russia has witnessed growth in the first half of this year and is expected to see overall net economic growth for 2010, a drought and record heat may put on a damper on this rate of growth.  This severe weather has lead to destruction of cropland and grain production forcing the nation to implement a ban on grain exports.  Additionally, the smoke from fires and the unbearable heat are resulting in Russian’s leaving the nation’s capital city and going elsewhere to seek relief.  In fact, the Federal Air Transportation Agency stated that a record number of people flew out of Moscow on August 8th
The effects of the heat have already started to prevail as the service industry, including all services from hotels to supermarkets, expanded at a slower pace last month than previously expected and manufacturers, like automaker Volkswagen AG have temporarily halted Russian operation. 
In a nutshell, the current weather conditions in Russia  is likely to have an adverse affect on retail sales, agricultural production, exports and the overall growth of the Russian economy.
Some ETFs that will likely be influenced include:

  • Market Vectors Russia ETF (RSX), which provides exposure to publicly traded companies that are domiciled in Russia, and traded in Russia and/or on leading global exchanges.
  • SPDR S&P Russia (RBL), which tracks a float adjusted market cap index designed to define and measure the investable universe of publicly-traded companies domiciled in Russia
  • CurrencyShares Russian Ruble Trust Report (XRU), which seeks to replicate, net of expenses, the price of the Russian Ruble.

Disclosure: No Positions