Markets have seen Russia often in the news due to its political manoeuvring on the global stage or known for its meddling in other countries' democratic system.
However, it also possesses one of the world's largest economies and has proven to survive the ongoing sanctions against it by the European Union and the United States.
For investors, it provides an interesting investment in the medium term due to its growing technocratic economic management but there are some risks to be aware of, such as the Russian reliance on natural resources and to its extreme wealth inequality.
Now, looking to the macroeconomic variables, an IMF forecast for Russia’s GDP showed significant growth over the next four years. This demonstrates the resilience of the Russian economy against the sanctions, and the success of its pivot towards opening up eastern markets for its goods in contrast to its traditional western dependency. It could also be representative of the growing technocratic economic management that Russia had embarked upon after the sanctions began.
This forecasted growth might have already starting showing as the average GDP per capita is already improving and hence, the economic pain felt by many Russians should be easing. This should bode well for the services sector of Russia with rising consumption and increasing business services due to a growing wealth in the country. This improving situation also bodes well for the political stability in Russia.
In addition to, investment in the Russian economy is forecasted to increase to approximately 25 per cent of total GDP. This is a large number that demonstrates the upgrading and creation of a variety of goods. This ranges from increasing state investment into infrastructures, which are crumbling, new technological investments, increasing innovation, amongst others.
This investment not only feeds into current growth, but also lays the foundation for future growth of Russia and is very likely to spill over into private businesses. This spillage is what investors should be aiming to take advantage of in the medium term.
The increasing technocratic management is clearly shoring up the strength of the Russian economy against its headwinds of energy reliance and international sanctions as is seen in the strengthening labour market. This growing market also demonstrates more evidence for strengthening consumer demand and business demand. All of these green shoots in the Russian economy can be threatened by the rising debt load of the Russian government if not used for productive means. However, even with this threat the level of debt is extremely low compared to other countries in the world, and explains the relatively strong fiscal position Russia is in.
It is clear that Russia has a lot of economic potential and has already begun making some reforms to better ensure a functioning, productive economy. It has a growing economy, which is seen in a variety of macroeconomic fundamentals, such as the unemployment rate, GDP per capita, and total investment.
Russia has been able to fend off the continuing sanctions from the west and pivot towards new growth markets in the east. It appears to continue to be politically stable albeit in an illiberal regime. This regime fends off its various nascent political threats and is focusing on improving the economy to grow out of its people's concerns.
Disclaimer: This article was issued by Maria Fenech, credit analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.
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