This year is shaping up to be a much better one for the Russian Federation. Following back-to-back years of economic recession and much of the Western world putting its leader, Vladimir Putin, in the dog house because of his apparent actions in Ukraine and his support for Bashar Assad in Syria, Russia is ready to make a comeback. This might not be entirely translatable in its stock market however, which is already up over 40% year-to-date.
Russian Ministry of Economic Development revised its outlook for industrial production in 2016 to 1% compared to the previous 0.4%. In November, national statistics firm Rosstat said industrial production in the first 11 months of 2016 rose 0.8% from 2015 and 2.7% compared to the same month a year ago. IP also rose around 1% from October levels.
Russia’s Finance Minister Anton Siluanov said in the local press that the economy could surprise next year by accelerating growth to 1.5%. It’s not blockbuster by any measures, but after negative three percent growth over the last two years, it is at least a move in the right direction for once.
“The economy may surprise to the upside next year,” Siluanov said. “If so, growth will have an impact on the dynamics of wages and incomes, which have already shown a steady growth pattern in real terms thanks to falling inflation,” he said.
Siluanov said the government is working on “a set of measures to further support growth and accelerate it.” Siluanov gave the usual overtures to Russia’s perennial structural problems that hinder growth outside of the natural resources sectors, mainly oil and gas.
Speaking of oil and gas, Morgan Stanley analysts wrote in a report that Rosneft and Gazprom were looking good heading into 2017. Rising oil prices and expectations for higher dividends were one of the reasons for Morgan Stanley’s bullishness on those two companies, coupled with the idea that a Trump Administration will be less belligerent toward Russia.
Russia-bound investors are mixed in their hopes for sanctions removal on oil and gas next year. If they are lifted, share prices for Rosneft and Gazprom will soar. Exxon Mobil may also see a bump. It has a $720 million joint venture with Rosneft that it can dust off in the Kara Sea once those sanctions are lifted. Exxon said it has lost around $1 billion from Russian sanctions.
Foreign firms acquired a 19.5% stake in Rosneft and the company is looking to shed more shares to foreigners. They’d be following in the footsteps of the Qatar Investment Authority and Glencore, who spent 10.2 billion euros to acquire a major stake in Russia’s biggest oil driller.
Russian business daily Vedomosti reported Qatar and Glencore are considering selling some of their stake already to some other Arab fund managers.
Russia’s better political outlook and better oil prices may be priced in. The economy is far from being a locomotive for growth. And oil prices are not expected to go gang busters next year. Consensus estimates have it under $55 a barrel.
Anti-Russian sanctions introduced by the West have proved to be ineffective, with the Russian economy showing clear signs of recovery, Austrian Wiener Zeitung newspaper wrote
Russia reacted to the sanctions by strengthening its domestic production, especially in the field of metallurgy and agriculture, the article said.
“Russian agriculture has now reached record levels and is able to cover about 100% of the demand for chicken meat and 70% for beef and pork. The so-called import substitution works,” the newspaper wrote, citing German economic expert Dietmar Fellner.
According to the expert, Russia’s economic recovery in spite of the Western sanctions “boosts the country’s self-confidence.”
“The world’s largest country is just about to ‘pull out’ from the recession using, as far as possible, its own resources,” Fellner stated.
The former trade delegate to Moscow believes that Europe is suffering from sanctions even more than Russia. According to him, from 2010 to 2013 there was an economic boom in the Austria, with its exports to Russia reaching 3.5 billion euros.
“With the decline of the Russian economy, Austrian exports also decreased. In 2016, they had almost halved to 1.8 billion euros,” the newspaper wrote, referring to Fellner.
In 2014, the European Union and the United States imposed a series of sanctions against Russia over its alleged involvement in the conflict between the Kiev authorities and the militia in the east of Ukraine. Moscow has repeatedly denied the accusations and noted that the sanctions are counterproductive.
Recently, Russian Foreign Minister Sergei Lavrov stated that Moscow won’t make unilateral concessions to abolish the restrictive measures. According to the journalist, that means that “the war of sanctions” will end not in favor of the European Union.