Posts Tagged ‘Russian economy’

Growth in Russian economy, but no champagne corks yet

russian economyRussia’s economy may have expanded as much as 4% in the last quarter of 2009 following a timid return to growth in the third quarter, according to Deputy Economy Minister Andrei Klepach speaking at a conference in Moscow last week.

The economy may show “quite strong growth” of between 3% & 4% in the fourth quarter from the previous three months, Klepach said. This is an interesting claim, and doubly so given that Klepach has been quite cautious so far this year in his claims. Evidently the rising price of oil and the return of some financial flows into Russia is firing up optimism.

GDP expanded 0.6 percent in the third quarter as compared to the second quarter according to Economy Ministry data out this week. Whilst the economy also grew 0.5%  between August and September, with month-on-month growth being due to a “good grain harvest,” increased meat production and an improvement in manufacturing output, the Economy Ministry said.

Nonetheless the economy still managed to register an annual decline of 9.4%, compared with a 10.9%  record annual contraction in the second quarter.

Certainly foreign investment into Russia is on the rebound. On Oct. 19th Klepach predicted the country may see a small capital inflow this month, and no net outflow in the fourth quarter. This compares with a net capital outflow of $31.5 billion in the third quarter. In September, the net outflow was $6 billion, down from $16 billion in July. This indicates that foreign investors are returning to Russia’s capital markets, while Russian companies and banks are increasingly able to access international markets. However,  this improvement isn’t necessarily great cause for celebration. The increase in foreign investment is largely being driven by bank lending and portfolio investment, which can easily go into reverse.

This must most certainly be one of the reasons behind Russia’s central bank recent decision to lower key interest rates by half a percentage point for the second time in a month, in a bid to both stimulate lending & also to stem the inflow of funds & the rise in the value of the ruble which is making the work of restoring competitiveness to the manufactured sector all the more difficult.

Six million Russians were added to the government’s official poverty count in the first quarter. By the end of 2009, 17.4% of the population or 24.6 million people will be living beneath the subsistence level of $185 per month, almost 5% more than before crisis, according to World Bank estimates. Unicredit analysts forecast that the number of Russians with disposable incomes of more than $1,000 per month will fall 48% this year to about 13.6 million, or roughly 10% of the population.

Russia’s consumer prices were flat in August, the lowest monthly reading in four years, but annual inflation was still running at 11.6%. Producer prices, on the other hand, are falling fast, and declined an annual 10.8 percent in August, compared with a record 12.3 percent in July. Today’s decision follows the announcement earlier this month that the Russian economy suffered a record economic contraction in the second three months of the year and refelect the growing recognition that the country now faces a painfully slow recovery. Just how painful things might become will form the subject matter of this report.

The full report from Bank Rosii can be accessed here : Country Briefing Report

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Kudrin Upbeat on oil, should we upbeat on RSX ?

Alexei KudrinRussia has been hard hit by the current economic crisis & especially by the decline in oil prices this year. According to Economics Ministry data, Russia’s GDP declined by 9.3% in July 2009 year-on-year and 10.2% in the first seven months of the year. Energy products, including crude oil & natural gas, accounted for 65.5% of exports in the first half, while metals made up 12.1%.

According to Finance Minister, Alexei Kudrin, the Russian economy will be on the rise again as early as in the third quarter of 2009.

“We still do not have the final data for the second quarter, but we expect Russia’s economy to grow in the third quarter compared to the second quarter, and the third quarter will mark the end of recession,” Kudrin told a news conference whilst in London attending the G20 summit

Russia has recently raised forecasts for the price of oil and is now looking at revising its views on gross domestic product (GDP), Kudrin said last week. The Economy Ministry now sees Urals oil averaging $57 a barrel this year, up from the $54 forecast previously & the average price of crude is projected to increase gradually to $58 in 2010, $59 in 2011 and $60 in 2012.

With 40% of  the Market Vectors Russia ETF Trust (NYSE: RSX) predicated on energy, it is plain that energy prices need to remain stable if not advance in the light of the news above, if it is to become more attractive to risk averse investors. Trading at $23.54 off of a 52 month low of $10.34, it is still a long way off of its high of $40.75.

RSX

Standard & Poors retained it’s BBB rating on Russia last Thursday, which would seem to allay some fears, as it was widely expected that the rate would be cut. The ratings agency also noted that by the end of 2012, with net debt levels at 14% of GDP, Russia’s public balance sheet remains superior to the BBB rating median of 42% of GDP.

The government is also now tapping its $85.7 billion Reserve Fund & $90.7 billion National Wellbeing fund, which were built on windfall oil revenues, to pay for an “anti-crisis” program that is worth about 2.5 trillion rubles ($79 billion).

Personally, I am positive on Russia long term & feel that this ETF offers value for a long term portfolio, year to date, it has returned 75.4% & I reckon it has further to go. Lately it has been trading in a choppy pattern & has suffered a significant retrace, but with S&P confirming it’s rating, I’ll be looking closely at the price of crude & natural gas over the next month or so, any gain there & I’ll be adding with an expectation of an additional 25% gain this year.

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