The outgoing year saw the normalization of Russia’s macroeconomic indicators after the highly volatile 2015. Ruble stabilization has reduced capital outflow from the private sector several-fold from over $50 billion that fled the country in 2015. These factors also lowered the inflation rate to a record low of less than 6 percent from over 15 percent in mid-2015.
However, this macroeconomic normalization was accompanied by a growing number of anomalies in the global economy, including in the advanced economies. The biggest of these anomalies were not Brexit, the results of the Italian referendum or the US presidential election but the growing uncertainty and risks in the advanced economies’ markets, which used to be so attractive and stable. In light of very low and sometimes negative rates in industrialized countries, the global financial capital has partly shifted its operation to the more profitable emerging markets, which has benefited Russia. As a result, Russia has returned to the Eurobond market and launched a new stage in its privatization program.
The key trends in 2016 included the transformation of the uncertainty factor in the advanced economies’ financial markets and also a certain decline in the emerging markets’ dependence on the situation in the advanced economies (decoupling). The global economic diversification continued with the creation and strengthening of new development institutions (the Asian Infrastructure Investment Bank AIIB), new global reserve currencies (the yuan), and new global financial centers. The status of East Asia as the most dynamically developing economic region has strengthened against the backdrop of growing risks and imbalances in Europe and the United States.
In 2017, higher risks will persist in all the key regions of the global economy. China will have to deal with a growing debt, banking system problems and the economic slowdown. A major risk factor in Europe will be the new election cycle and its influence on the fragile budget situation in the EU and on the European financial system, including troubled banks. The growth in federal spending that the new administration may launch in the United States will create more risks in addition to uncertainty over the US international trade policy and the degree of its protectionism.
One more risk factor for Russia and other emerging economies is the monetary policy of the US Federal Reserve System, whose harsh rhetoric and plans for three rate increases in 2017 could add to volatility in the emerging markets.
A breakthrough Russian achievement in 2016 was an agreement with OPEC countries to reduce oil production, which has helped boost oil prices. But will the OPEC countries honor the agreed quotas (commitments) in 2017, considering that discipline is not their strong side? However, the signing of this agreement has allayed the risk of a potential sharp plunge of oil prices similar to the downward trend of the late 2015 and early 2016.
A global long-term trend will be the domination of regional integration alliances over global institutions, such as the WTO. In the past few years, Russia has started to take advantage of the opportunities offered by regionalism, and so 2017 may see Russia’s foreign economic breakthrough towards a more diversified system of trade alliances. Of key significance in this respect will be the Eurasian Economic Union’s talks with Serbia, South Korea, Singapore and Israel, as well as the strengthening of the union and the sustainable economic growth of its member states.