Russia enters the 2020s with a solid economy
The Russian market ended 2019 with a steep upturn. Rysslandsfond rose 5 percent in SEK terms in December, despite a sharply stronger krona.
The Russian economy gradually improved this year. Production was up 3.1 percent year-on-year in October, and the numbers looked set to improve from the third to the fourth quarter. We expect this to continue since we anticipate higher government infrastructure investment. Inflation continued to fall, leaving room for another rate cut by the central bank, this time by 25 basis points to 6.25 percent. More can be expected in 2020.
Russia will show double surpluses for 2019, in both its balance of payments and its national budget. Despite accelerating growth, we expect these to persist. The Russian economy therefore looks solid as we enter a new decade.
OPEC+ has agreed to cut production by an additional 500,000 barrels per day in 2020, which could support oil prices and benefit Russia.
Positive developments have continued in the Ukraine conflict. The parties have agreed further prisoner exchanges, a renewed ceasefire and a withdrawal of troops from certain areas. There are still major differences of opinion, but at least the trend is in the right direction.
Gazprom published fairly weak third-quarter results, as expected. The price of natural gas has recently been in a downturn. The company adopted a new dividend policy for 2020, to distribute at least 30 percent of adjusted profit according to IFRS. For 2021 this will be 40 percent, rising to 50 percent in 2022 and thereafter. Gazprom has also commissioned its Power of Siberia pipeline, which stretches over 2,000 kilometres and will annually deliver 38 billion cubic metres of gas to China under a 30-year contract. China is becoming an increasingly important trading partner with Russia.
Lukoil is drawing up a new climate strategy that will make it the first Russian oil company aiming to be climate neutral by 2050. Lukoil’s board has also adopted a new dividend policy to pay out 100 percent of free cash flow after interest, leasing payments and share repurchases.