Russia’s rocky recovery is likely to be short-lived
Russia’s economy surprised analysts by growing at its fastest pace in six years in 2018. But investors shouldn’t get too excited.
Russia's economy surprised analysts by growing at its fastest pace in six years in 2018: GDP growth strengthened to 2.3%, its highest level since 2012, outstripping expectations.But investors shouldn't gettoo excited.This pace of growth is likely to be due to "one-off factors", says Anna Andrianova on Bloomberg. These include the $27bn Yamal gas project, and the fact that last year's football World Cup boosted the country's restaurant and hotels sector, which expanded by 6.1%.
On balance, however, there seems little scope for a big rise in consumption in the near future; the labour market is strengthening and credit growth is accelerating but on the other hand households are grappling with stagnant incomes and rising inflation. "We need faster growth, especially after several years of recession," Anton Tabakh, chief economist at Moscow-based credit assessor RusRatings told Bloomberg. The one thing that could give growth a long-term boost by raising the economy's speed limit is structural reform, but there has been precious little progress on this front in recent years.
In order to improveits competitiveness, Russia would have to diversifyits economy. But its "long-standing reliance on raw materials revenues" has hampered modernisation and looks set to keep doing so, says Natasha Turak on CNBC. Between 2005 and 2015, education spending fell by 0.8% to only 2.6% of GDP, and healthcare spending declined by 0.6% to 3.8% of GDP. However, these are two areas the country desperately needs to invest in, according to the World Bank.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Red tape and the fear of having assets seized, a perennial problem in Russia, aren't helping either.The upshot is that annual growth will fall back again soon.
Marina has a PhD in globalisation and the media from the London School of Economics, where she worked as a teaching assistant on the MSc Global Media. In 2014 she was invited to be a visiting scholar at Columbia University's sociology department in New York.
She has written for the Economists’ Intelligent Life magazine, the Financial Times, the Times Literary Supplement, and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany. She is trilingual and lives in London. She writes features and is the markets editor at MoneyWeek..
-
Zoopla: housing market recovery continuing amid brighter 2024 outlook
The Zoopla House Price Index has found sellers are still accepting five-figure discounts on their properties. But house price inflation is improving.
By Henry Sandercock Published
-
Revealed: the best funds to buy before the end of the tax year
Looking to add more investments to your portfolio but not sure where to start? We reveal the best funds to buy now as the end of the tax year edges closer.
By Katie Williams Published