Let’s look at Russia’s present financial health report.
Thanks to import substitution (domestic production instead of imports to neutralize sanctions) Russia’s industrial production rose 2.6% year-on-year in June. (USA +1.1%, UK +0.8%, Japan -2.4%, Germany -5.9%). Above, we mentioned that US industrial production was up with as little as a cumulative 5% since 2008 to date. In the same period Russia’s industry grew 18% notwithstanding the hardships of sanctions and sharp drop in oil price. In fact, since 2014 when the sanctions were first imposed, Russia’s industry has grown 12%.
Russia’s merchandise trade surplus for the first half of 2019 was $93 billion, ranking third in the world after China and Germany and before South Korea. Imports were down by 3%, the other side of the coin of growing domestic manufacturing. Even when exports also were slightly down, lower imports will keep the surplus on track to reach levels near $200 billion for the full year, just under last year’s record $212 billion.
Q1 current account surplus clocked in at $33 billion, up 10% over the year.
In this connection, it might be helpful to remind that Russia’s economy is nowhere near as dependent on fossil fuel extraction as it is habitually believed in the West. In fact, oil and gas only account for 10% of Russia’s GDP according to World Bank statistics. (In 2017, total natural resources share of GDP was 10.7%, but that includes minerals and forest, too).
We also need to point out that Russia has an enormous strength by way of being the world’s most self-sufficient major country. Russia has the by far lowest level of imports relative to GDP of all countries, as evidenced by below table. It shows that Russia’s imports as a share of GDP was as low as 7.2%, while the corresponding level for Western European countries was between 30 to 40%. The extraordinary low levels of imports in a global comparison obviously signifies that Russia produces domestically a much higher share of all that it consumes (and invests), this in turn means that the economy is superbly diversified contrary to the claims of most so-called Russia experts.
Despite initial scares, inflation has remained low even when the VAT rate was from the new year raised from 18% to 20%. The rolling 12-month inflation runs at 4.6% but with the declining trend the full year inflation is expected to hit the central bank’s target 4%.
The job market continues strong with record low unemployment levels, while the job participation rate has not deteriorated (so no tricks here). The July reading of 4.6% translates to 3.4 million unemployed, which is low for a country with a population of 146 million. The strength of the labor market was underscored by an increase of real salaries by 3.5% by July. This while disposable income otherwise has remained subdued.
Whereas the US is combating persistent budget deficits (latest reading, a deficit of 4.5% of GDP) – likewise the EU countries – Russia mustered a huge budget surplus equal to 3.4% of the GDP by July this year.
Russia’s foreign exchange and gold reserves have also done a spectacular comeback reaching $520 billion.
The Russia sovereign wealth fund surged in July to reach a value equal to 7.2% of GDP.
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