Russia Thrives in Hostile Environment

Russia’s economy saw year-on-year growth of 1.8 percent in the second quarter benefitting from rising oil prices and despite increasingly harsh US sanctions, the national statistic agency Rosstat said.

Russia’s economy expanded by 1.3 percent in the first quarter of the year compared to the same period of 2017, after two years of recession in 2015 and 2016.

The return to growth seen in 2017 has continued this year despite the announcement in April of new US sanctions over Russia’s alleged meddling in 2016 presidential elections won by Donald Trump.

This week Washington has announced further tough sanctions, this time over the nerve agent poisoning in Britain of former Russian double agent Sergei Skripal and his daughter.

In addition to these sanctions, which prevent the exports to Russia of certain “national security sensitive” technologies, the US could also impose a second round of sanctions that would be much broader and that a senior US State Department Official described as “draconian.”

Fears over the currency caused the ruble to fall sharply, hitting levels against the dollar not seen for two years on Friday, although the central bank predicted the volatility would be temporary.

Oil and gas prices saw growth at the start of the year and Russia remains highly dependent on exports of its energy resources.

The 2014 collapse in oil prices along with Western sanctions over the Ukraine conflict plunged Russia’s economy into a prolonged recession that severely hit consumers’ purchasing power.

Research consultancy Capital Economics said in a Friday report that “the conditions are in place for the recovery to strengthen in the next few quarters.”

It predicted that “lower inflation and labour market improvements should boost consumer spending.”

Meanwhile “on the production side, we think that the economy will be boosted by an increase in oil output,” it predicted, after exporters in June agreed an output rise.

While Russia has emerged from the longest recession seen under President Vladimir Putin’s rule, growth is still far from the 4 percent annual target he announced in March, along with a goal to cut the number of those living in poverty by half.

The IMF has predicted 1.7 growth for Russia over 2018. In May it voiced concern at Russia’s “shrinking” share in the global economy and failure to reach higher income levels. It said the authorities have to introduce structural reforms to address problems such as the ageing population and encourage a stronger private sector.

The following two tabs change content below.
S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

Latest posts by S. Jack Heffernan Ph.D (see all)