My 2009 Russia Outlook

Robert Hsu, January 05, 2009

Russia – along with many other economies in the world -- took a turn for the worst in 2008. Of course, the main culprit dragging down the Russian economy was the global financial crisis and economic

slowdown.

In 2008, Russia's retails sales plunged and unemployment skyrocketed to 6.6%. But these weren't the only two things pulling the Russian economy down. You must consider how much Russia's war with Georgia, plunging oil prices and a depreciating currency played a role in hurting the country's economy in 2008.

So after averaging 7% economic growth from 2000 to 2007, Russia's economy is on track to sink into recession in 2009. And the picture is just as bleak for Russian stocks, as they dropped 75% in 2008.

What's interesting is that despite the economic slowdown in the country, Russia is still beefing up its military spending. In late December, Russia announced that is was sharply increasing its production of strategic nuclear missiles and other weaponry -- ultimately, the country is increasing its military spending by 28%. An increase in spending on weapons is generally not economically productive, especially when the economy is bad.

So the outlook for Russia in 2009 isn't any brighter than what we saw in 2008. A lot like other economies around the world, it's going to take some time for Russia's economy to recover from the turmoil of 2008. And that's why I don't expect Russia to turnaround any time soon, and why it remains a poor investment environment right now.

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