Russia Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	72
ISBN Number	1744-8824
Product Code	BMI03516

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Summary

Expect A Very Deep Recession

The capital shortage impacting emerging markets will be acutely felt in Russia, and a systemic crisis has thus far only been avoided through proactive government intervention facilitated by a large stockpile in foreign currency reserves. That said, the crisis risks will remain through the medium term. Indeed, the potential for the economy's external and fiscal dynamics, as well as banking system stability, to unwind at an accelerated pace will only increase as official foreign exchange reserve stocks fall further in 2009. Not only under such a scenario do we countenance a protracted and deep recession, but we also highlight the risks of negative credit events even among the country's largest quasi-sovereigns.

Russian political risk is set to grow considerably in 2009 as rising unemployment, declining purchasing power and elevated economic uncertainty results in increased public dissatisfaction.

Social instability is likely to be the most obvious implication and we expect a rise in the severity and number of public demonstrations. At the government level, we believe that the deterioration of economic conditions will also place strains on the Putin-Medvedev dual-head structure, as approval ratings for both the Prime Minister and President decline markedly. This will elevate the potential for a shift in the power structure and we highlight the risk of an early return of Vladimir Putin to the presidency.

We expect the Russian economy to contract by a real 4.0% in 2009, with only a marginal recovery to 1.1% growth forecast for 2010. Leading consumption and production indicators have not only further reinforced the negative outlook we have maintained on the economy since the third quarter but are also suggesting that the crisis risks we have been highlighting are increasingly elevated.

Russia's business environment is hampered by poor infrastructure, rising state protectionism in the energy industry and weak institutional development, which has contributed to an endemic corruption problem and limited impartial judicial oversight. There are signals that the government is taking some of these issues seriously, but we do not expect any major changes to occur within the short term. The size of the country and the limited capacity of government institutions mean that any policy initiatives will take years to have any meaningful effect.

Content

Executive Summary: Expect A Very Deep Recession
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Political Outlook
- Political Risks Set To Rise Significantly
- Russian political risk is set to grow considerably in 2009 as rising unemployment, declining purchasing power and
- elevated economic uncertainty results in increased public dissatisfaction.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Introduction
- Risks Of A Systemic Crisis In Russia
- The capital shortage impacting emerging markets will be acutely felt in Russia and a systemic crisis has thus far only
- been avoided through proactive government intervention facilitated by a large stockpile of foreign currency reserves.
- Economic Activity
- No Avoiding A Deep Recession
- We have revised down our 2009 and 2010 Russian growth forecasts to -4.0% and 1.1% respectively.
- Exchange Rate Policy
- Rouble To Fall Through RU B41.00/Basket
- Over the medium term, we expect the Russian rouble to depreciate below its current RUB41.00/basket floor.
- External Debt
- Private Sector Debt To Pose Sovereign Challenges
- We forecast the nominal level of Russian total external debt to fall in 2009 to US$464.6bn (34.7% of GDP), reflecting
- our view for a protracted period of global deleveraging.
- Fiscal Policy
- Expect A Massive Budget Deficit In 2009
- We expect Russia to post its largest deficit on record (in nominal terms) in 2009, translating into a forecast 7.4% of
- GDP shortfall.
Chapter 3: 10-Year Forecast
- The Russian Economy In 2018
- Growth To Slow As Net Export Surplus Slips Away
- Over our 10-year forecast horizon, Russian trend growth is expected to slow markedly to an average annual 3.8%
- between 2014 and 2018.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine to
- spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Outlook
- Operational Risk
Chapter 6: Key Sectors
- Food & Drink
- Infrastructure
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- Table: Russia Political ove rview
- Table: ECONOMIC ACTIVITY
- Table: EXCHANGE RATE POLICY
- Table: FISCAL POLICY
- Table: RUSSIA Long -Term Macroeconomic Forecasts
table: Banks' Leverage Ratios
table: Assets As % of Home Country GDP
table: Assets As % of Home Country GDP When Eurozone Is Considered 'Home Country'
table: Exposure As % of Tot al Exposure To Region
table: Banks' Foreign Exposure (US$ mn)
- Table: Exposure As % of National GDP
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Europe, FDI Annual Inflow s
- Table: BMI TRADE RATINGS
- Table: Top Export Destinations
- Table: Russia Food Consumption Indicators - Historical Data & Forecasts
- Table: Russia MGR Value Sales By Format (US$bn) - Historical Data And Forecasts
- Table: Russia Alcoholic Drinks Sector Production & Value/Volume Sales
- Table: Russia-Infrastructure Industry Forecast
- Table: Global Assumptions
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets, Real GDP Growth Forecasts
- Table: DEVELOPED MARKET EXCHANGE RATES
- Table: EMERGING MARKET EXCHANGE RATES