WORLD OF INDUSTRIES 06/2018 (RU)

Optimism in
sight for the
Russian economy
NEWS AND MARKETS
Macro-economic and monetary stability, improvement
in manufacturing, rising wages and pensions
combined with rising oil and commodity prices provide
a positive boost to recovering Russian economy. As a
result this improves the foreign capital investment
scenario particularly in sectors like machinery, and
transportation and logistics equipment.
R
ussia is the largest country in the world, with a surface of over
17 million sq. kilometers and a population of 145 million. The
country has undergone drastic changes since the collapse of the
soviet union. Economic reforms in the 1990s privatized most of the
industry sectors, except energy, transportation, banking, and
defense-related industries. Russia is one of the world’s leading producers
of oil and natural gas, and is also a top exporter of metals
such as steel and primary aluminum. Crude oil, petroleum products
and natural gas comprise roughly 58 % of Russia’s total exports,
iron and steel represent 4 % and gems and precious metals account
for about 2.5 %. This makes Russia heavily dependent on global
commodity prices and also vulnerable to the boom and bust cycles
of the commodity market. The economy, which had averaged 7 %
growth during the 1998-2008 period as oil prices rose rapidly, has
been witnessing diminishing growth rates since then due to the
exhaustion of Russia’s commodity-based growth model. Russia was
among the hardest-hit economies by the 2008-09 global economic
crisis. The economic contraction was the sharpest since the 1990s,
but no long-term damage was caused due to the government’s proactive
and timely response to protect the key sectors of the economy
from the after effects of the crisis. As a result, Russia’s economy
Author: Sushen Doshi, International Correspondent, World of Industries
began to grow again and increased roughly by 4 % from 2010-12,
before slowing down to less than 1.5 % in 2013 and 0.6 % in 2014.
A combination of falling oil prices, international sanctions, and
structural limitations pushed Russia into a deep recession in 2015,
with GDP falling by close by 3.7 %. The downturn continued through
2016, but bounced back with an increase of 1.5 % in 2017 as global
demand picked up. The global growth reached a stronger than
expected 3 % in 2017. It continued its growth momentum from 2017
into early 2018 and is expected to peak at 3.1 %. Supported by improvement
in investment, manufacturing, monetary situation
along with rising commodity prices, Russia’s economy recovered
from a recession in 2017. Robust growth in advanced economies
and commodity-importing emerging markets has also contributed
to a rise in Russia’s economic situation.
In terms of manufacturing, Russia registered a marginal growth
of 0.1 % in 2017 as compared to 2016, as industries such as automobiles,
commercial and other transport vehicles, chemicals, coke
and oil products contributed the most and a drop in the production
of computers, electronic and optic devices contributed negatively
to manufacturing growth. Lower government spending in areas of
defense also impacted negatively on the growth. Exports grew by
5.1 %, in 2017 compared to 3.3 % in 2016, this exports growth in
goods was mainly fueled by growing exports of non-oil goods and
robust external demand. Services sector also demonstrated robust
growth in exports at 14.4 %, driven by an increase in exports of
transport services, construction, information and communication
technology.
Russia’s internal domestic demand also bounced back by 3.6 % in
2017, and became the main engine of growth. Increasing domestic
demand, investment, growing real wages and pensions and declining
unemployment, supported by a stronger ruble, contributed
nearly 1.8 % to GDP growth in 2017. Fixed capital investment in
mineral resource extraction (oil and gas), in transportation via
pipelines and sports mainly due to the 2018 FIFA World Cup, were
the main areas of growth in fixed capital investment. While fixed
capital investment started the recovery in some manufacturing sectors
like food products (close to 10 %), textile (close to 40 %), phar-
8 WORLD OF INDUSTRIES 2018