At the kick-off for the World Cup finals on 14 June, Russia will move to the public limelight for four weeks. According to Erste Asset Management (Erste AM), there are numerous reasons for a closer look at Russia, its economy and its equity market beyond the current events in sports: the rise in US interest rates, the recent strength of the US dollar, the recovery of the oil price, the renewed tightening of sanctions, and the re-election of President Putin have shifted the economic environment and the framework for investors.
According to equity strategist Peter Szopo, the Russian economy has moved past the recession of 2015/2016, which had been largely triggered by the slump in oil prices and in domestic purchase power. This year and in 2019, the economy should grow by about 1.8% according to current forecasts. Whereas a number of emerging economies have been negatively affected by the rise in US interest rates and the appreciation of the US dollar, Russia is in better shape to be facing this scenario, as the Erste AM expert explains. The country has generated a current account surplus and a practically balanced budget. Total debt has generally fallen over the past years, with government debt amounting to only 17.5% of GDP.
“However, the solid macroeconomic figures should not gloss over the fact that the long-term growth momentum of the Russian economy is subdued,” says Szopo. The predicted growth figures are only half the size of global economic growth. This would mean significantly lower growth rates than in the years prior to the financial crisis, when the country was in the fast lane. Whether this will change during “Putin 4.0” remains to be seen. “The new government and the reform goals decreed by the president are signalling limited willingness to reform”, as the expert explains.