Dan AtkinsonWith strong public finances, a current-account surplus and inflation under control, the Russian economy boasts firm foundations at a time of increasing economic uncertainty around the world.
This helps to explain why the rouble has remained relatively steady against the US dollar in the past year and is currently trading at its 12-monthly high point of $0.016.
Admittedly, growth is decelerating, but in a less pronounced way than in many other G20 countries.
Too much stability?
Government reserves are strong, giving Moscow enviable financial firepower with which to confront any crises in the near future.
The dark days of August 1998, when Russia defaulted on its overseas debt, seem a very distant memory with Moscow share prices have been on a five-year roll. The MOEX index of top 50 shares rose from below 1,500 to more than 2,700 in that period.
However, some believe stability can be taken too far and that economic growth ought to be given a higher priority.
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The rouble/euro rate has also been fairly steady during the past 12 months and, as with the dollar, it currently stands at its high point, of €0.014. There has been a little more volatility against sterling, possibly resulting from Brexit-related uncertainty, with the rate currently at £0.012, below its 12-month high of £0.013.
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Since the break-up of the Soviet Union in the early Nineties, Russia’s economy has been subject to a series of misunderstandings on the part of western commentators. To some, it is the “wild east” of breakneck privatisations and mysterious “oligarchs”, to others it is hopelessly dependent on the export of commodities such as oil and gas.
Growth forecast lowered
In reality, it is a highly-developed economy whose strengths in natural resources are complemented by strong positions in defence and aerospace, scientific instruments, electronics and the manufacture of transport and construction equipment, among other sectors. One previous weakness, that most Russian consumer goods were not of a standard suitable for foreign markets, has been partially addressed with many firms working towards achieving export quality.
In its most recent Article IV health check, the International Monetary Fund (IMF) noted this year:
“Output grew by 2.3% in 2018, driven by exports and consumption, which was supported by growth in real wages and higher labour demand. Investment registered a moderate increase compared to the previous year. After reaching historical lows earlier in 2018, inflation picked up in the second half of the year.”
However, the IMF has forecast that growth will fall to 1.2% this year, reflecting in part lower oil prices and the impact of a rise in value-added tax (VAT) on private consumption. It added:
“At the same time, GDP [gross domestic product] growth should be supported by an increase in public sector spending in the context of the national projects announced in 2018…Public infrastructure spending under the national projects together with increased labour supply due to pension reform could have a positive effect on the growth rate of potential output.”
But some fear too many infrastructure schemes may be delayed as the government puts fiscal stability before growth.
