Macroeconomic development

In 2016, the global economic growth rate was equal to 3.1 percent, with advanced economies showing a decline, standing at 1.6 percent compared to 2.1 percent in 2015, and emerging markets and developing economies performing slightly better than the year before, standing at 4.2 percent compared to 4.0 percent in 2015. Among the main economic developments made in 2016, the following deserve most attention:

  • Prices for oil, metals and other commodities demonstrated growth by the end of the year. The price of Brent oil recovered from US$ 31 per barrel in January 2016 to US$ 53 per barrel in December, following OPEC’s agreement to limit crude oil production;
  • The growth of the Chinese economy remained above 6 percent, which was supported by a targeted government stimulus of consumption and real estate market recovery;
  • The US economic growth rate slowed down to 1.6 percent; bolstered by low inflation, the Federal Reserve decided to raise the interest rate to 0.75 percent in December 2016;
  • The European economy started to slowly recover in 2016, with its GDP growth rate increasing from 1.2 percent in 2015 to 1.5 percent, with Germany contributing 1.7 percent of the GDP growth rate in 2016.

Supported by recovering oil prices, Russia’s economic decline began to slow down , with its decline in the GDP decreasing from -2.8 percent in 2015 (reviewed) to -0.2 percent in 2016 . Under continuing international sanctions, additional support for the economy came from the localisation of production, which resulted in a 0.4 percent growth index for the output products and services, with industrial production (+1.1%) and agriculture (+4.8%) being the main contributing factors.

By the end of the year, the Russian Ruble had strengthened by 17 percent against the US dollar, and by 20 percent against the Euro (RUB/USD: from 72.92 to 60.66; RUB/EUR: from 79.63 to 63.81), and as such, its volatility became significantly lower than the year before.

The current account of national balance of payments showed a decline from US$ 69.0 billion (revised) in 2015 to US$ 22.2 billion in 2016 , mainly due to a decrease in exports (from US$ 342 billion in 2015 to US$ 280 billion in 2016), although, balanced by a decrease in capital outflow (from US$ 57.5 billion to US$ 15.4 billion). Foreign bank liabilities lowered by 54 percent to the level of US$ 27.4 billion in 2016.

As in the first half of the year, when the pressure on Russian Ruble was easing and inflation (the consumer price index) was declining, the Bank of Russia decreased the interest rate from 11.00 percent to 10.50 percent in June and to 10.00 percent in September, which should encourage the corporate and private financing. This is now much lower than 17.25 percent interest rate observed at the end of 2014, but still has a potential to decrease even further.

The total sum of outstanding credits issued to the non-finance sector decreased by 6.9 percent (from Rub 44.0 trillion at the end of 2015 to Rub 40.9 trillion at the end of 2016), and outstanding credits to corporate borrowers decreased by 9.5 percent (from Rub 33.3 trillion to Rub 30.1 trillion respectively). The volume of the corporate overdue debt was lower by 8.9 percent in 2016 compared to 2015.

In accordance with improvements in the real economy, the Russian stock market started to recover : RTS index (based on market capitalisation in USD) grew from 755 points in January to 1,152 points in December (+53 percent with a total capitalisation of US$ 171.5 billion), the MICEX index grew from 1,761 points to 2,233 points (+27 percent with a total capitalisation of Rub 10.5 trillion).

Real domestic consumption in Russia decreased by 3.8 percent in 2016 (compared to an 8.1 percent reduction of the previous year). Investment in fixed assets lowered by 0.9 percent in 2016.

The industrial production index increased by 1.1 percent , supported by growth in the raw materials extraction sector by 2.5 percent, and in the energy, gas and water production sectors by 1.5 percent. Manufacturing showed minor positive dynamics with a 0.1 percent increase. The main growth in manufacturing came from chemical production (+5.3%), wood processing (+2.8%), paper production (+0.8%), the textile industry (+5.3%), leather goods production (+5.1%) and food production (+2.4%). The machinery and equipment production index amounted to 3.8 percent yoy ; in 2015, it showed double-digit decline of 11.1 percent. Other manufacturing sectors continued to decline with the manufacture of other non-metallic mineral products decreasing by 6.6 percent.

Inflation (the Consumer Price Index) in Russia reached 5.4 percent in 2016, in comparison to 12.9 percent the year before. The main cause of the slowdown in inflation was a significant drop in consumer demand, with trade turnover decreasing by 5.2 percent in 2016. The Industrial Producers Price Index was 7.4 percent in 2016, versus 10.7 percent in the previous year, following overall economic stabilisation.

The average unemployment rate in 2016 stood at 5.5 percent , which is 0.1 percent lower than in 2015. Real wages grew by 0.6 percent , yet real disposable income fell by 5.9 percent – the most significant decrease since the year 1999.

The Russian Federal Budget showed a deficit of Rub 2.97 trillion, which comprised 3.5 percent of the GDP – budget revenues decreased by 1.5 percent, while spending grew by 5.2 percent. The decrease of oil and gas earnings amounted to 17.6 percent when compared to 2015, thus the government succeeded to increase its non-oil and gas revenues by 10.7 percent compared to 2015. The main contributing factors of which came from public property, including the sale of Rosneft’s oil company shares in the amount of Rub 710.8 billion.

In 2016, the Russian Federation increased its external debt by 2.6 percent to the level of US$51.2 billion. Russia’s total debt grew by 1.6 percent to Rub 11.1 trillion (or 12.9 percent of the GDP).

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