Looking into Russia

This year, 2017, is a significant one for both Finland and Russia: Finland celebrates 100 years of independence, and Russia – of the October revolution. It is not much of celebration in Russia though, but an important historical date. Did it bring only negative things for the country altogether, or was there something positive too, and what is the balance, is a complicated question, and it might be too short time passed by now for answering it.

In Soviet era the Russians have lived with the imperial feeling, the country being a real global political power. In many aspects it was equal to the USA or even ahead – defense, weapons, air-space exploring. After the collapse of USSR, it was not easy to stand the dramatic changes of 1990s, and not only economic difficulties – lack of money and all kind of supplies, destruction of social support system etc. – but the political part of it, knowledge that the role of the country in the world is not the same any more, and there is not much left to be proud of… However, it is clear that the present situation in Russia is the result of many complicated processes that have been active during all those years and still are going on.

Leaving the politics aside at the moment, let us look at the economics only. After the total disaster of 1990s, there have been two sharp crises that have driven Russian economy backwards drastically, in 2008 and 2014 when the oil prices dropped briskly down, and the recovery process after the last crisis has been very slow.

But since 2016 Russian economy shows small signs of improvement, such as slight growth of industrial output, oil and gas mining, agriculture and consumption. The consumer confidence indicator published by the Federal Statistics Service (Rosstat) registered a sixth consecutive period of improvement in Q3 2017, rising to minus 11 points from minus 14 points in Q2 2017.

According to Focus Economics agency, in October analysts upgraded their 2018 forecasts for the Russian economy as the recovery seems on stronger footing than previously believed. Higher oil prices should support economic activity next year, although a troubled banking sector is a risk to the forecast. GDP is seen expanding 1.8% in 2018, which is up 0.1 percentage points from last month’s forecast. This year, the economy is projected to grow 1.6%.

Another positive news is that in spite of the sanctions, during the first 2Qs of 2017 the Russian-Finnish trade turnover grew significantly and reached EUR 5 bn that is 1.5 times more than the same period of 2016. Import from Russia grows, a big part of it being imports of pipelines apparently reflecting supplies for the Nord Stream 2 gas pipeline project.

As BOFIT reports, Finnish exports to Russia were up in nearly all product groups, in particular the export of machines and equipment rose by 50%, and food exports by 12%. Services exports also appear to be recovering strongly this year led by tourism services: the number of Russian overnight stays in Finnish hotels and lodgings grew by 23%, and the purchases value of Russians visiting Finland even more.

Next year Russia will have a number of important high-level events, the biggest being the Presidential elections and FIFA World Cup. So, the situation looks stable and the growth of investments might be expected.

Julkaistu 27.11.2017

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