Concluding Remarks
As we have seen, Russia is bouncing back from seven consecutive quarters of negative economic growth. All major indicators – GDP, inflation, oil prices, unemployment, fiscal deficit, and exchange rate – point in the direction of a stronger economy. We believe this trend will continue, especially after the agreement between main producers to limit oil supply.
The challenge now is to consolidate this recovery and project it into the long-term, particularly given Russia’s dependence on strong oil prices. Amongst the most urgent tasks, besides diversification, we can count two: (i) institutional reforms that reduce corruption, increase investors’ confidence, and help improve the overall business climate in the country, and (ii) normalization of relations with the West.
The challenge now is to consolidate this recovery and project it into the long-term, particularly given Russia’s dependence on strong oil prices. Amongst the most urgent tasks, besides diversification, we can count two: (i) institutional reforms that reduce corruption, increase investors’ confidence, and help improve the overall business climate in the country, and (ii) normalization of relations with the West.
On the political front, we can expect President Putin to run for reelection in March 2018, seeking – and probably winning – a second consecutive six-year term. Regarding internal political risks, we cannot discount the possibility that the middle and lower classes become tired of corruption and income inequality – which are remarkably linked in the case of Russia –, leading to social turmoil. A report by Credit Suisse from October 2015 stated that “the top decile of wealth holders owns 87% of all household wealth in Russia.” That is considerably higher than the US (76%) and China (66%). External political risks come mainly from Russian military intervention, be it in neighboring countries (like in Georgia or Ukraine) or beyond (e.g., Syria).
This article was written by Innealta Capital, a participant in the ETF Strategist Channel.
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