Page 11 - bne_Magazine_March_2018

bne March 2018 Companies & Markets I 11
The investment grade status opens Russia up to a new class of investor like US pension funds that are not allowed to invest in junk graded assets. It will also cause an inflow of passive money by index tracking funds that also require investment grade sovereign ratings. However, both these inflows will be muted by the US sanctions on Russia.
Oreshkin welcomed the news, saying: “This opens a path for increased investment lending and expands the possibility
of financing the infrastructure debt.” Oreshkin added
that the floating exchange rate and careful targeting of inflation “significantly reduced the dependence of the Russian economy on oil prices."
The rerating of Russia represents a catch up with the govern- ment’s success in dealing with the imposition of international sanctions in 2014 when Russia’s rating was cut to junk status.
Initially investors worried that Russia would not be able to meet its debt obligations – worries that only got worse when Russia was hit by the double whammy of the collapse of oil prices the same year. However, Fitch noted that the general
“The S&P upgrade gives Russia a hat trick of investment grade ratings”
government debt has since fallen to 15.5%,of GDP in 2017, one of the lowest in the BBB category, and that the government can easily meet these debts from improving tax collections.
Recession over
The crisis is finally over and two years of economic contraction – the first backwards movement since president Vladimir Putin took office in 2000 – finally ended in 2017 as Russia’s economy returned to growth.
Preliminary figures from Rosstat show that Russia’s economy turned the corner in 2017 and GDP grew by 1.5%, which was slightly less than nearly all forecasters had expected thanks to a “technical recession” in the last part of 2017. Russia is recovering but the recovery remains fragile.
Now the pace already seems to be picking up. One of the pleasant surprises already in was a better than expected performance in industrial production, which expanded by a strong 2.8% in January y/y after contracting in both November and December, Rosstat said on February 16.
This backs up the PMI index results that measures activity in the productive parts of the economy. Business activity growth across the Russian service sector remained strong in January, despite the pace of expansion easing to a three-month low, according to a report by IHS Markit published on February 5. The IHS Markit Russia Services Business Activity Index stood at 55.1 in January, down from 56.8 in December, but still remaining above the no-change mark of 50.0 and indicating "a strong expansion in output among Russian service providers".
"The Russian service sector indicated a solid start to 2018, with strong expansions in output and new business," Markit economist Sian Jones commented., adding that anecdotal evidence of the survey links improved business activity to more favourable economic conditions and greater new order volumes.
Another positive surprise was the all-important real disposable income – the money left after spending on utilities and food
– did not contract for the first time in nearly three years in January. That doesn't mean Russians are feeling rich, but the pressure is off and shoppers are starting to trade up to better quality goods and make big ticket purchases again according to the most recent Sberbank Ivanov index.
Average nominal incomes in dollar terms have made back much of the ground they lost during the Great Recession
PMI vs. Industrial Production (y/y)
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