After two years of recession, the Russian economy shed its sanction-clad recessionary skin in January with the economy officially in the black, the Rosstat agency said on Sunday.
Overall, Russian GDP fell as expected last year, ending the year down 0.2% and starting off 2017 up around 0.3%. Market estimates are for Russian GDP to rise somewhere between 1.3% and 1.7% this year so long as oil averages $50 a barrel.
Russia is now trying to focus more on small to mid-sized businesses, as its oligarch driven energy and finance industry has taken a hit from sanctions. Small businesses are now accounting for 19.9% of GDP, up slightly from 19.4%. The greater participation of Russian firms down market has led to better Rosstat figures than those focused more heavily on commodities and finance.
The beginning and the end of the recession is considered to decline or GDP for two consecutive quarters as compared with the previous quarter. Fourth quarter GDP rose in Russia and is on the rise in the first quarter as well. First quarter Rosstat data has not yet been published. The Central Bank of Russia thinks that the recession might have ended earlier than the fourth quarter, but regardless of when it ended Russia's conservative fiscal policy has proven resilient to weak oil prices and sanctions.
Based Rosstata data, the main contribution to decline of GDP in 2016 was household consumption falling 4.5% followed by a reduction of public sector spending and investment. The government, which controls all of Russia's biggest money making enterprises from the sanctioned energy giant Gazprom to Sberbank, also cut back on its budget. If one thing can be said about Russia in times of economic crisis, it is not one to stimulate. It cuts back. The decline in domestic demand was partly offset by a weaker ruble which helped trade, particularly agribusiness as reported here.
Where's Russia going next? To some, hopefully, to hell in a hand basket. But to investors holding VanEck Russia (RSX) and the VanEck Russia Small Cap (RSXJ) funds, the central bank there thinks its heading to 1% to 1.5%. Russian economic planners have learned their lessons over the last few years in basing their forecasts on unrealistically bullish oil prices. In 2015, they based their budget on $80 oil. Last year, $60. This year, they've dialed it way down to $40 meaning they look more bearish than they have in years. With that price, Russia's growth rate should hover between 1.5% and 2% out to 2018.
After quite a rally in 2016, the VanEck Russia ETF has been taking a breather this year.
StockchartsFor emerging markets, that's nothing to write home about. India is better. China is better. Mexico is better. Even smaller developing markets like Indonesia and Colombia are way better. But if Russia can reduce its gap in living standards in cities outside of Moscow and St. Petersburg, and if oil stays steady, then the country can at least remain at status quo with upside, rather than status quo with downside.
Consumers are starting to come to life there.
Consumer sentiment in the first quarter rose from 92 to 100, according to GfK Russia. Another at 100 points or more on the GfK Russia index indicates a positive mood for consumers. It's been on the uptrend since February 2016.
