S&P lifts Russia outlook to ‘positive’

Things are starting to look up for Russia.

Ratings Agency S&P Global Ratings on Friday lifted its outlook on Russia to “positive” from “stable”, citing improving economic growth prospects and lower risk of large capital outflows. However, the agency maintained its ‘BBB-’ long term credit rating — leaving it one notch above junk territory.

After a two-year recession, S&P expects that Russia will return to positive economic growth this year. They anticipate growth to average 1.7 per cent between 2017 and 2020, up from a contraction of 0.2 per cent last year.

Moreover, the agency pointed out that while Russia agreed with Opec to curb its domestic production by about 300,000 barrels per day by June the rise in crude prices has compensated for the losses from lower output. The agency said:

Over the medium term, we expect that the economic recovery will be driven by the expected modest rise in oil prices, continued expansion of the oil and, particularly, gas sector in volume terms, as well as an uptick in household consumption. Nevertheless, in the short term, the economy will remain constrained by sanctions that dampen investor interest. Moreover, structural impediments, such as the state’s pervasive role in the economy and the challenging business and investment climate, will continue to limit Russia’s ability to diversify away from commodities.

The positive outlook indicates that the ratings agency could lift its ratings if the Russian economy continues to adapt to the relatively low price environment while maintaining its strong net external position and low government debt burden.