Russia's economy is highly depends on oil prices and I expect that the global oil prices will continue its bullish trend. Following OPEC's meeting in June, Russia is expected to increase oil production. Against the backdrop of the rising oil prices, Russia's trade surplus should significantly increase in 2018. Also I expect that the current account to remain in surplus in 2018-2022, driven by strong trade surpluses. Sanctions against Russia made negative effect on the foreign direct investment inflows, however I expect that these inflows will recover in 2019-2022. I believe in Russia's economy and bet on its stable growth in the mid-term.
Russia's economy shows positive signs of recovery and returns to growth. The main engines of this recovery are: (1) improved and stable macroeconomic situation: low inflation, low unemployment rate, higher real wages (and, thus, domestic private demand), lower interest rates, etc., (2) improved business environment (e.g., Ease of doing business index, ranking of Russia: 2014 = 92, 2015 = 62, 2016 = 51, 2017 = 40, 2018 = 35), (3) favorable commodity prices. I assume that near-term risk associated with USA sanctions against Russian companies and USA increased import tariffs for steel and aluminum will not have significant effect for economy growth. However, there are some fundamental issues that could adversely affect Russian economy: (1) Russian banking system problems. Despite Central Bank's attempts to clean banking system, one should note that (a) these activities are rather costly (some estimate ~$40 ban up to now), (b) competitiveness is decreasing (as the share of private banks decreasing), (c) confidence of business in the banking system is low. (2) Decreasing productivity coupled with declining labor force (due to demographic). (3) Traditional dependence of Russian economy from oil and gas (mainly, due to high share of oil and gas income in Budget)
The confrontation between Russia and the West intensified statist, nationalist and protectionist trends within the government. At this case the main priority for the Russian government will be economic sovereignty, which would be expressed by insulating the economy from external shocks. The main tools of this strategy include a large positive sovereign external asset position, protectionist measures to support domestic manufacturing through import substitution and a cautious approach to foreign investment. In my view the implementation of this strategy as part of transformation period will be associated with a slowdown in the Russian economy growth rate in the medium term. Also the weakness of most political and legal institutions, as well opaque governance system, will put additional pressure on the country in this transitory period.
I just want to express one interesting point on the corruption in military sector in Russia. You all remember that Russia's Military Defense Minister Mr. Anatoly Serdyukov had been accused for wasteful spending of multi-billions of rubles which were dedicated to military upgrade and development. And what did Mr. Putin..., he just fired him but simultaneously they announced that this was an unprecedented corruption in Military Sector. Secondly, during this particular time Russians had not been doing any independent movement in global geopolitical scene. But right after that Mr. Putin demonstrated all his strength, military strength. I am assured that this was a strategic rational for this: they just showed to the world that Military Sector was under the control of such a man like Mr. Serdyukov in order to lull the world into a false sense of security that there were all thefts from senior to juniors in military sector of Russia and thus no development was possible....One day I had a meeting with senior military officer and he told me that Mr. Serdyukov never was in touch with any military officer.. This means that the Minister Mr. Serdyukov was just a folding screen behind which the really development of military force was underway. Maybe this is untrue but logically reasonable. I do not want to say that Russia does not have a corruption, It has indeed but I think that that strategic sectors are under close control.
Russian economy is coming out of recession stronger and more stable than before despite western financial sanctions. Russian banks and companies considerable reduced their dependence on foreign debt. Personally, I am focused and domiciled in the USA and now I am becoming more interesting in the opportunity that offers Russian economy. As shown by many macro indicators, Russian economy has easily survived and is clearly not torn to ribbons while some high-ranking western officials cried from every corner. In my opinion, for the last 2 years many investors were forced to turn their backs from Russia that of course caused investing deficit, but now I suppose it is right time to come back, And I am highly likely to expect better growth in 2019 as the latest
Russian Government set 2% target growth for 2018 year, I would suggest two main factors which are the base of such growth forecast. Firstly, the growth of internal consumption due to inflation dropped (to 2-3 percent, a level never imaginable for Russia) which ultimately strengthen real wages and thus spending.. Secondly, oil prices, as we see there is a gradual and steady increase in global oil pricing high exceed 3 years history - above $70 per barrel, this brightens Russia's outlook. I would bet minimum 4% of GDP growth for the next 3 years
I heard that notwithstanding the sanctions a lot of German businessmen are keen to invest and 2-3 times more right after the presidential election. I personally met about 10 good wealth persons. In my estimates this would give 2-3pp. more in GDP. I bet that Russia is one of the top country to invest in amidst emerging markets.
It is arguable but many experts are inclined to think that small and middle-scaled firms constitute the core of the economy of any country. If so, Russia is facing problems in its development, no economic dynamism, there is no environment in which we can expect innovation or entrepreneurship for such small and middle scaled business. But other experts thinks that backing on the experience of modern China and by-gone USSR they showed that the core of economy is government-linked large scale business. I think that both points of views are worth to take, but the level of corruption of Russia is very high and this is the major drawback, impediment of any possible development in Russia, excluding the military sector that is of direct control of Mr. Putin. But military sector may not balance the economy towards to a steady path of development.