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Optimism in sight for

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

maceuticals (close to 15 %), electrical equipment (around 30 %), mechanical machinery and components (around 15 %), some sectors like metallurgy and metal goods saw a contraction in fixed capital investment which was the biggest drag on manufacturing investment dynamics. Growth prospects from 2018-2020 Russia’s growth prospects for 2018 – 2020 remain modest, with growth forecasted to be between 1.5 and 1.8 %. However, in the short-term, these forecasts may change due to highly volatile oil prices. Relatively high oil prices, continued momentum in the global economic growth and macro stabilization would support growth. Yet, the growth forecast for Russia for 2018 has been slightly decreased to 1.5 % due to carry-over effect from a weak second half of 2017 and lower than expected growth in the first quarter of 2018, aggravated by some uncertainty arising from DER ANTRIEB Reliable. Versatile. Global. NORD 4.0 READY! THE GEAR UNIT Strong bearings Quiet running THE MOTOR High efficiency Global standards THE DRIVE ELECTRONIC Field distribution system Easy implementation Getriebebau NORD GmbH & Co. KG | Fon +49 4532 289-0 |