November 9 brought two different kinds of news for the Russian economy. First, the latest World Bank forecast on the Russian internal indicators came to light, showing expectations for 2016 GDP growth still in the red zone with a 0.6% contraction, but estimating 2017 growth at 15% and 2017 growth at 1.7% respectively. The forecast is in line with Russia's Ministry of Economic Development, which predict a recession between 0.5% and 0.7%. In June, the World Bank set its estimates at a 1.2% fall in GDP, painting a much gloomier picture. Second, Donald Trump won what emerged to be a nasty election, getting hopes up for Russian investors. Interestingly, both of these news still give little to no certainty on what comes next for Russia.
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The main factors behind Russia's recovery lie in services, construction, transport and communications sectors, as well as increased domestic demand, somewhat compensating the sanction-afflicted external demand.
What preserves the uncertainty element in the Russian economic outlook is the high dependency on rising oil prices. The forecast is based on the assumption of rising oil prices, namely $43.30 per barrel in 2016, $55.20 in 2017 and $59.90 in 2018. While analysts claim demand will surpass production and OPEC will strike a deal on cutting output volumes, causing prices to rise, the forecast on the industry is anything but a safe bet, meaning that markets might not be fully convinced by the growth estimates.
Analysts also note that while boosted government spending is well perceived both by Russia's poorer part of the population, closing in the inequality gap and increasing income for low-income individuals, there is still room for improvement when it comes to the outreach of the policies, as indicated by European Union countries with similar government spending.
Meanwhile, Trump's election as POTUS gave hope to the Russian government for a relief of some of the sanctions. Although during the pre-election period Vladimir Putin denied favourites, claiming that he will work with whomever becomes the next President of the United States, soon after Trump's victory, the Russian Economic Development Minister Aleksey Ulyukaev suggested that the billionaire might be a candidate more independent from the current decision-making system. Ulyukaev confirmed Russia will use this political development to extend the olive branch, but remained clear of any expectations, remembering the optimism with which Barrack Obama's presidency was addressed.
There is, however, a decent chance that the sanctions could be at least partially lifted, which could mean easier self-financing for Russian businesses. Morgan Stanley has even come forward and put a number on it – claiming that there is a 35% chance of a US sanction relief in the next two years.