Some positive signals in Russia

The Russian economy, which relies heavily on oil and gas exports, suffered a serious blow when oil prices fell from over $100 per barrel in mid-2014 to under $50 per barrel in early 2015. Declines in production and sales have in many sectors led to cuts in long-term investment projects.

The situation improved a little in 2016 when the Russian rouble stabilised after a steep drop. The first quarter of 2017 looks even better. According to the Russian Rating Agency AKRA, the recession has finally ended after two years of contraction. Experts are predicting modest annual GDP growth of up to 1.5% for the next five years. Growth will mainly come from oil, gas and coal.

Inflation in 2017 is expected to be 4.3%, i.e. very close to the Central Bank’s target of 4%. The unemployment situation has also improved according to Rosstat. The current level of 5.5% is historically very low. S&P and Moody’s have changed their outlook on Russia from negative to stable.

There are still a number of hurdles. The diminishing labour force is one. The list also includes the growing number of pensioners, coping with migration and cheap rouble. In addition, the sanctions are still in force, driving away foreign investors.

But there are some positive effects, too. Der Spiegel in Germany reported that Russian farmers have benefited because the sanctions protect them against foreign competition. The sanctions have also stimulated domestic production in other industries. And the cheap rouble is a boon to exporters. For the first time, agricultural products have overtaken weapons in exports. And in 2015 Russia produced, for the first time, more cereal crops than the United States. Russian farmers still struggle with the production of vegetables and milk.

Thanks to a string of small improvements, it is now easier to do business in Russia than before. In the World Bank’s index of 189 countries, Russia’s ranking has improved from 120 in 2010 to 62 in 2017. Interest in Russian stocks picked up during the first quarter and the RTS index is expected to rise by 11% this year, according to Reuters. To find out more about recent developments and to explore business opportunities in Russia, please contact Seppo Hoffrén Consultancy.