How is the Russian economy doing in 2014

Russian Federation - Economic Relations

The economic relations between Germany and Russia are based on long-term and close cooperation. After a sharp decline in German exports to Russia and bilateral trade turnover overall in 2015 and 2016, trade in goods in both directions picked up again in 2017.

The bilateral trade volume recorded in 2015 with a decrease of 23.9 percent (compared to the corresponding period of the previous year) to 51.733 billion euros, the strongest decrease since the crisis year 2009. In 2016 this negative trend continued with a decrease of only 6.8 percent noticeably weakened. The bilateral trade turnover amounted to 49.028 billion euros. In 2017, there was an increase of 19.2 percent compared to the previous year - albeit from a low starting level.

German exports are also following this trend. While they fell by 18.4 percent in 2014 compared to the previous year and by a further 25.8 percent in 2015, they recorded a decrease of only 1.2 percent in 2016. The negative trend of recent years in bilateral trade did not continue in 2017: German exports to Russia increased again by around 19.8 percent.

The main reasons for the decline in bilateral trade in recent years are structural weaknesses in the Russian economy. This is particularly evident in the high dependency on oil and gas exports. The decline in oil and gas prices, combined with the devaluation of the ruble, resulted in lower revenues for Russia from energy exports and falling purchasing power. The sectoral EU economic sanctions imposed by Russia as a result of the ongoing destabilization of Eastern Ukraine and the Russian countermeasures in the agricultural sector have further reinforced this trend. The Russian policy of import substitution and localization has also had an impact on bilateral trade.

The slight growth in Russia's gross domestic product (GDP) and the increase in bilateral trade volume in 2017 are mainly due to the oil price, which rose last year.

Russia remains Germany's largest energy supplier. Almost 40 percent of Germany's gas and oil requirements are met from Russian deliveries. In addition, the German economy purchases a considerable amount of non-ferrous metals as well as iron and steel from Russia.

Economic situation

Russia basically has great economic development potential. Its wealth of raw materials continues to secure extensive income that can be used to develop other economic sectors. The country is one of the largest energy producers in the world and the Russian economy continues to be highly dependent on international raw material prices. The energy sector continues to be the mainstay of Russia's economic development.

After 2010, after the effects of the global economic crisis, the Russian economy initially returned to moderate growth with annual GDP growth rates of around 4 percent. Since 2012, however, the increase in GDP has declined continuously and in 2014 only reached 0.6 percent. The inflation rate was 12.9 percent in 2015, while unemployment rose slightly to 5.8 percent.

In 2015, GDP fell by 2.8 percent. Here, too, the main reason is the low oil price. There are also structural weaknesses and increased capital outflows. Finally, the loss of confidence that the Russian economy suffered as a result of the conflict in Ukraine, the economic sanctions imposed by the EU, the USA and other economic partners since July 2014 and the Russian countermeasures are likely to have an additional dampening effect. In 2017, the economic situation largely stabilized, especially in view of the increased oil price. The GDP rose 1.7 percent and the inflation rate fell to 4.2 percent. The unemployment rate is stable at 5.5 percent. Economic forecasts for 2018 assume a slight economic recovery of 1 to 2 percent.

Further information on the business climate is available on the GTAI website.

Bilateral relations between Germany and Russia

Bilateral trade
Russia is an important sales market for German capital goods due to the continuing high need for modernization of its economy. In the structure of German exports to Russia, machines (17.3 percent), food (10.1 percent), motor vehicles and parts (8.4 percent) and electrical engineering (5.3 percent) took the top positions in 2017 . In 2016, Germany was the second most important supplier country for Russia with 10.7 percent of Russian imports after China (20.9 percent) and the third most important buyer country (7.4 percent). The most important export goods of Russia are raw materials, especially crude oil and natural gas, as well as metallurgical and petrochemical products. This illustrates the complementary economic structure of both countries, which fundamentally opens up great potential for economic cooperation in the future.

Development of economic relations
Economic relations developed positively for a long time. After the weak phase caused by the crisis in 2009, German-Russian trade resumed the boom years between 2000 and 2008. In 2012, the record level of trade volume of 80.5 billion euros was reached

Russia has been an official member of the World Trade Organization (WTO) since August 22, 2012. Linked to this was the expectation of a further intensification of trade. As early as 2013, however, the bilateral trade volume fell by almost five percent to 77 billion euros. Exports from Russia to Germany amounted to 41.2 billion euros and, conversely, German exports to Russia amounted to 35.8 billion euros. In 2014, German exports to Russia fell by 18.4 percent to 29.2 billion euros and imports from Russia by 7.1 percent to 38.3 billion euros. In 2015, German exports to Russia fell by 25.8 percent to 21.7 billion euros and imports from Russia by 22.5 percent to 30 billion euros. In 2016, German exports fell by only 1.2 percent to 21.5 billion euros compared to the previous year. In 2017 they even increased by 19.2 percent compared to the previous year.

The effects of economic development in Russia and the associated decline in exports on the German economy as a whole are limited. Total German exports worldwide grew by 72.1 billion euros or 6.4 percent in 2015. In 2016 they were a further 1.1 percent higher than in the previous year. In contrast, the share of German exports to Russia in total German exports fell to less than 2 percent in 2017. In order to expand economic cooperation between the two countries, the German-Russian strategic working group for economics and finance meets at regular intervals. The last meeting took place on September 28, 2017 under the co-chairmanship of the State Secretary in the BMWi, Ullrich Nussbaum, and Aser Talybow, the Deputy Minister for Economic Development of the Russian Federation. Business representatives from both countries also take part in the working group.

German companies in Russia
The German economy is still very present on the Russian market. German companies are also well represented in Russian regions: companies with German participation can be found in almost all of the 83 federal subjects (administrative units of Russia). A large number of German companies had also set up Russian production sites in the past few years or made significant other investments. However, the number of companies operating in Russia with German equity participation fell by 5.2 percent to 4,965 in 2017. Most of the German companies active on the Russian market belong to the middle class.

Direct investment
The cumulative German direct investments in Russia amounted to a volume of 19.941 billion euros in 2016 and 20.760 billion euros in 2017. Germany is one of the most important foreign investors in Russia.