Russia's Economy Goes Out Of Recession
Next year is shaping up to be a much better one for the Russian Federation. Following back-to-back years of economic recession and much of the Western world putting its leader, Vladimir Putin, in the dog house because of his actions in Ukraine and his support for Bashar Assad in Syria, Russia is ready to make a comeback. This might not be entirely translatable in its stock market however, which is already up over 40% year-to-date. On Monday, the Russian Ministry of Economic Development revised its outlook for industrial production in 2016 to 1% compared to the previous 0.4%. In November, national statistics firm Rosstat said industrial production in the first 11 months of 2016 rose 0.8% from 2015 and 2.7% compared to the same month a year ago. IP also rose around 1% from October levels.
Russia's Finance Minister Anton Siluanov said in the local press today that the economy could surprise next year by accelerating growth to 1.5%. It's not blockbuster by any measures, but after negative three percent growth over the last two years, it is at least a move in the right direction for once. "The economy may surprise to the upside next year," Siluanov said. "If so, growth will have an impact on the dynamics of wages and incomes, which have already shown a steady growth pattern in real terms thanks to falling inflation," he said. Siluanov said the government is working on "a set of measures to further support growth and accelerate it." Siluanov gave the usual overtures to Russia's perennial structural problems that hinder growth outside of the natural resources sectors, mainly oil and gas.
Speaking of oil and gas, Morgan Stanley analysts wrote in a report last week that Rosneft and Gazprom were looking good heading into 2017. Rising oil prices and expectations for higher dividends were one of the reasons for Morgan Stanley's bullishness on those two companies, coupled with the idea that a Trump Administration will be less belligerent toward Russia. Russia-bound investors are mixed in their hopes for sanctions removal on oil and gas next year. If they are lifted, share prices for Rosneft and Gazprom will soar. Exxon Mobil may also see a bump. It has a $720 million joint venture with Rosneft that it can dust off in the Kara Sea once those sanctions are lifted. Exxon said it has lost around $1 billion from Russian sanctions. Foreign firms acquired a 19.5% stake in Rosneft this month and the company is looking to shed more shares to foreigners. They'd be following in the footsteps of the Qatar Investment Authority and Glencore, who spent 10.2 billion euros to acquire a major stake in Russia's biggest oil driller.
Russian business daily Vedomosti reported Qatar and Glencore are considering selling some of their stake already to some other Arab fund managers. Russia's better political outlook and better oil prices may be priced in. The economy is far from being a locomotive for growth. And oil prices are not expected to go gang busters next year. Consensus estimates have it under $55 a barrel. Russia's GDP fell by 0.6% between January and November, according to the Economic Development Ministry. It's only now getting momentum thanks in part to the holidays. The Russian economy in November grew in comparison to November 2015, which is the first time that's occurred since the 2014.
This year will still end negative. The Ministry of Economic Development said GDP in 2016 will come in at -0.5%, a little better than its previous estimate of -0.6%. Russia's 'big bang' may look more like those old school wooden pop guns; pull the trigger and out comes a flag with the word "bang" on it. It is crawling into 2017 after being beaten up for two years. But it looks like the Russian economy will be back on its feet, and is in better shape at the start of 2017 than it was at the start of 2016 when oil was falling below $40 a barrel.