Page 5 - RusRPTMay19

1.0 Executive summary
Russia’s economy continued to grow in the first quarter but is on track to only expand by 1.3% this year, according to the official estimate of the Ministry of Economy, which is well below potential.
Growth is slow at the macroeconomic level, but things are going much better at the microeconomic level where Russian corporates have put in their more profitable year in the last thee years and the banking sector earned more profits in the first quarter than in any time in the last five years. The mood amongst business has clearly picked up and managers are the most optimistic about the rest of the year than they have been for several years, although they retain a measure of caution.
However, there is almost no trickle down to the man in the street where real disposable incomes contracted again in the first quarter by 2.3% as the Russian consumer goes into their sixth year of austerity. That is depressing retail sales, which has a knock on effect on investment and growth.
Fixed investment remains well below par and is not enough to fuel more rapid growth. At the same time the consumer’s tightening of the pursue strings have also depressed imports. While that means Russia is running a very healthy current account surplus, this is actually a negative as the low level of imports is a testament to the pain the average Russian is feeling.
Industrial production and the IHS Markit Russia Manufacturing Purchasing Managers (PMI) index are also in the black, but again while there is growth it is not enough to result in an economic pick up nor to persuade owners to invest in expanding their businesses.
After a series of crises business has become increasing concentrated in the hands of the biggest companies that are consolidating their position in the market.
The consolidation has also lead to a round of mega-mergers where the leading companies in a sector – especially those connected to the consumer – have begun to buy out their nearest rivals to create pan-European giant companies. Amongst the leading sectors are financial, oil & gas and real estate where the market is beginning to pick up again.
What comes next will depend to a large extent on external geopolitics where the US is threatening another round of “crushing” sanctions. But the main driver for the economy in the coming years will be president Vladimir Putin’s May decrees and the RUB27 trillion of spending planned for the 12 national projects.
The goal is to transform the economy, but the Kremlin’s record on carrying off effective large scale investments is poor. While the spending will certain fuel faster economic growth, which is expected to kick in in 2021, the jury remains out as to the impact the reforms and investment will have.
5 RUSSIA Country Report May 2019 www.intellinews.com