It may have a stomach-churning roller-coaster performance during the crisis behind it, but steely-nerved emerging-markets pundits are again talking up Russia, which they say is no longer primarily a commodities story.
Over the nine years to the end of 2009, Russia sustained real economic growth of 5.4% per year on average, says Barings in its latest emerging markets review, putting it ahead of Poland, Turkey, South Africa, Israel and the Czech Republic. And more importantly, the growth in Russia was driven by domestic consumption to a greater extent than in the other countries.
In Russia, 3.9 percentage points of growth came from domestic consumption compared with 2-2.5 percentage points or less elsewhere. Future domestic consumption in Russia also looks robust, according to Barings. Having contracted in 2009, Russian domestic consumption is expected to rise by 4.5% this year and 6% in 2011.
This all chimes with latest thinking from URALSIB Capital, the independent Russian investment bank, which plans an investor conference for November entitled ‘Discovering growth opportunities beyond commodities – The other Russian Economy’. According to URALSIB, the theme has been chosen to reflect the attractive growth prospects and growing importance within the Russian economy of non-resource sectors, such as telecoms, media and technology, consumer goods and retail, transport, electric utilities, real estate and financial services, many of which are driven by domestic consumption.
“We believe that the non-resource sector offers a huge potential upside to investors looking to benefit from the ongoing recovery of the Russian economy,” says Mark Temkin, CEO of URALSIB Capital. “It benefits from a growing Russian middle class, increasing disposable incomes and resurgent GDP growth.”
And indeed Barings reports nominal wage growth in Russia of 10% year-on-year as of mid-2010 and pension incomes 30% higher than their mid-2009 levels.
“In a sense, Russia has been a beneficiary of the softening in energy prices in 2009, in that its economy has become more diversified,” says Barings.
Fiona Rintoul, editorial director
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