Russia Is Defying ExpectationsRussian Airports Could Be Biggest Beneficiaries of Hosting World Cup
Hosting the World Cup has set Russia back an
estimated $14 billion—again, a record amount for the competition.
Back in April, tournament organizers predicted that, as a result of increased tourism and large-scale spending on infrastructure, the competition would
add nearly $31 billion to Russia’s economy in the 10 years between 2013 and 2023. (FIFA selected Russia as the host nation in 2010.)
Analysts with Moody’s Investors Service were slightly less upbeat, writing that they see “very limited economic impact at the national level.”
Having emerged last year from a two-year recession that was triggered by the collapse in oil prices and imposition of sanctions following its annexation of Crimea, the country is now in full-on recovery mode.
In a note to investors last week, Capital Economics senior emerging markets economist William Jackson says that GDP growth in May picked up to more than 2 percent year-over-year, up from 1.3 percent in the first quarter.
Most of the changes, according to Jackson, came in manufacturing, which he estimates to be growing by more than 5 percent year-over-year, compared with only 1 percent previously.
Once almost entirely reliant on oil exports, the government of the world’s leading oil producer has lowered the structure of exports from 70 percent energy in 2013 to 59 percent last year, according to the World Bank.
Today, the budget is back in surplus, and government debt stands at a remarkable 33 percent of GDP, the lowest among G20 nations.
Key inflation is currently running at a record low of 2.4 percent year-over-year, well below the Central Bank of Russia’s (CBR) target of 4 percent. Food inflation, in particular, is near zero percent.
Unemployment continues to decline. In May it fell to 4.7 percent, a record low since the collapse of the Soviet Union in 1991.
Because of low inflation and a near-full employment jobs market, real wages are expanding healthily across all sectors. This is helping to drive stronger private consumption and investment. In May, retail sales grew 2.4 percent compared to the same month last year.
Government Policy Supportive of Future Growth
The Russian government is currently enacting or considering policy that should help sustain the economy’s recovery. For one, it recently moved to raise the retirement age to reduce the cost to the state budget on an aging population, the Financial Times reports. (The median age in Russia is nearly 40, compared to around 30 for the entire world.) The pension age for men will increase from 60 years to 65 years in 2028, while for women it will increase from 55 years to 63 years in 2034.
The reform could help the government save an estimated $27.3 billion a year, according to a Russian think tank.
The government is also reportedly working on a plan to
invest more in infrastructure and reduce “unnecessary regulation that is holding back private investment.” That’s according to Morgan Stanley’s Clemens Grafe, who adds that plans for “national projects” will be drawn up by October “that should help Russia to become one of the five largest economies in the world.”
Time to Consider Investing in Moscow?
Some might consider that fanciful thinking, but it doesn’t take away from the fact that Russia is an attractive place to invest right now, especially compared to the U.S. market.
Besides an economy in recovery, consider the following: Whereas the S&P 500 Index is up a little more than 13 percent for the 12-month period, the MOEX Russia Index has seen gains closer to 22 percent. That comes with an appealing 6.46 percent dividend yield, compared to 1.94 percent for U.S. stocks.
The price is right too. Russia
trades at an inexpensive 6.39 times earnings, the U.S. at 21.08 times earnings, according to Bloomberg data.
Source: US Global Investors
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