World Economy

Russia Economy Coming Back

Russia Economy Coming BackRussia Economy Coming Back

Russia's recent economic turbulence, weakened ruble and high inflation could be coming to an end, according to the chief financial officer of the country's leading telecoms business.

Alexey Kornya, chief financial officer of Russian telecoms giant MTS, told CNBC Monday that "in terms of inflation and ruble devaluation, the worst has already passed," he said.

Russia's economy was hit by a 50%-plus decline in oil prices since June 2014 and sanctions imposed by global powers for its annexation of Crimea and role in the pro-Russian uprising in Ukraine.

The combination of both saw capital outflows from Russia increase and the ruble weaken greatly against the dollar, spurring on a rise in consumer prices.

However, analysts are starting to see life coming back to the beleaguered economy and the recession bottoming out. Inflation remains high, however, at 15.8% in August and the ruble remains weak against the dollar, trading at 65.6 to the greenback Monday.

Fluctuation Irrelevant

Kornya from MTS, which is the leading telecommunications group in Russia and former Soviet countries, told CNBC Monday that his company was not too dependent on the currency fluctuations his country had seen over the last year as over 90% of its business was domestic.

As of June 30 this year, MTS serviced over 100 million mobile subscribers in Russia, Ukraine, Armenia, Turkmenistan, Uzbekistan and Belarus. In the second quarter, the group reported a 4.4% rise in total revenues in Russia, year-on-year, to 94.3 billion rubles ($1.43 billion).

"We see challenges from the devalued ruble experienced over the past year but at the same time we're not depending too much on macro volatility," he told CNBC, adding that he believed "the worst was over" for Russia.

"I think that the worst in terms of inflation and ruble devaluation is now past so now we need to find the new engines of growth in the Russian economy," he said.

"Generally, from what we observe in the market, we think the worst has already been experienced in terms of the fall in the oil price…but the question is how long this low commodity cycle will last," he added.


Russia's current economic crisis has highlighted how dependent its economy is on commodities for much of its growth, and Kornya said the country had to evolve away from its resource-reliant economic model.

"It is a challenge to see how other businesses in Russia that are commodity-oriented develop, especially in the environment where you have some inflationary pressures and where you're experiencing a devalued ruble," he said.

"We feel there is space for new businesses and new experiences for consumers however, it is still a challenge in the Russian economy to reduce this commodity dependence and to go into new sectors."

Life Returns

Bank of America Corp. is starting to see faint signs of an economic recovery in Russia. The magnitude of a slowdown in capital investment is easing, while corporate profits have been increasing, a combination that Vladimir Osakovskiy, the bank’s chief economist in Moscow, said could mark a turning point.

The country’s recession may have bottomed when gross domestic product shrank 4.6% in the second quarter, and considering that company spending will probably drive the recovery, that stabilization is likely to be more important for the broader economy than persistent weakness in consumer demand, he wrote in a report last week.

“Corporate profits in Russia are quite good year-to-date, and we look at robust growth in corporate profits as the main potential driver of stabilization and recovery in the near future,” Osakovskiy said by phone from Moscow last week. “We might see that the main macroeconomic indicators will start to improve on a year-over-year basis later this year, but we obviously have to wait until the increase in corporate profits spills over to the pickup in investment.”