Russia is starting to look like a normal country and 2018 will take it another few steps toward putting its emerging market status behind it.
Having climbed out of a two-year recession in 2017, Russia is still far from the blistering 6-8 percent annual growth of the boom years in the early 2000s. But the outlook for 2018 is gradual improvement and growth as high as 2 percent.
Digging into the details, more and more indicators are starting to look like developed market numbers. Inflation in December was at a record low of 2.5 percent and unemployment was at 5.1 percent. Income per capita in 2016 was $22,540, on a par with some European Union countries.
The outlier that marks out Russia as not quite there yet is interest rates.The Central Bank policy rate is still nearly 8 percent — an emerging market level. But that too is expected to fall and could go as low as 4-5 percent in 2018.
However, economic recovery remains fragile and in desperate need of deep structural reforms.
Russia’s petro-driven growth model was exhausted by 2013, long before the clash with the West over Ukraine, economic sanctions and hysteria over alleged U.S. election meddling. Most observers hope reforms will be launched after presidential elections in March that are expected to hand Vladimir Putin another six years in power.
Putin’s choice of economic model will be the main event of the year and set Russia’s course for the next decade.
The alternatives are stark. Former Finance Minister Alexei Kudrin wants investment in infrastructure and society to bolster productivity. Business ombudsman Boris Titov and the StolypinClub, a policy lobby group which he heads, prefer a massive borrow-and-spend campaign to kick-start growth. Putin may surprise, but Titov’s star seems to be rising.