Russia Business Forecast Report Q4 2008

Publication Date	August 2008
Publisher	Business Monitor
Product Type	Report
Pages	68
ISBN Number	1744-8824
Product Code	BMI02422

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Summary

Long-Term Trends Remain Unchanged

The surge in global energy prices in the first half of the year has significantly improved Russia's short-term macroeconomic outlook. As a result, we have revised up our real GDP growth, fiscal surplus and current account surplus forecasts to the upside, while also citing upside risks to our expectations for these variables beyond 2008. Nonetheless, our core long-term scenario for Russia remains unchanged - fiscal and current account surpluses are falling to balances and economic growth is slowing through to 2012. The primary risk remains inflation, which shows few signs of slowing, despite central bank efforts to tighten lending conditions and allow for further currency appreciation. As such, we have revised up our medium-term consumer price growth forecasts to 12.0% year-on-year (y-o-y) for end-2008 and 10.0% at end-2009.

New Russian President Dmitry Medvedev is likely to continue his active domestic policy agenda through the medium term, with fighting corruption and cutting red tape for business expected to be the key priorities. That said, uncertainty remains regarding the division of powers between Medvedev and former president-turned-Prime Minister Vladimir Putin. While there has yet to be any indication of a policy disagreement between the two, the bifurcation of authority does raise risks to the president's policy enactment capacity.

The boost to the Russian economy provided by surging energy prices in the first half of the year is unlikely to last beyond 2008. We maintain our core view that real GDP growth will decelerate markedly over the medium term, though remain relatively robust at an average annual 6.0% between 2009 and 2012. The rapidly declining trade surplus will be a key factor weighing on headline growth, with stagnating oil output and declining energy prices, concomitant with strong consumer-driven import growth, expected to largely eliminate the surplus after 2012.

The Central Bank of Russia (CBR) will raise mandatory bank reserve requirements from September 1. The required reserves for liabilities toward foreign lenders will increase to 8.5% from 7.0%, while the percentage for rouble retail deposits and other rouble liabilities will increase by 50bps each to 5.5% and 6.0%, respectively. The move comes amid increasingly aggressive monetary policy action by the CBR intended to rein in spiralling inflation, which hit 15.1% y-o-y in June. Going forward, we expect further actions from the central bank to tighten monetary conditions, including raising the key refinancing rate further beyond 11.0% as well as allowing the rouble to appreciate more against the US$/EUR basket it trades against. These actions will naturally elevate borrowing costs in the country and weigh on business expansions in the short term.

Content

Executive Summary
- Long-Term Trends Remain Unchanged
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Fighting Corruption to Be The Priority
- New Russian President Dmitry Medvedev Is Expected to Continue His Active Domestic Policy Agenda through The
- Medium Term, with Fighting Corruption and Cutting Red Tape for Business Expected to Be The Key Priorities.
- Table: Medvedev Foreign Policy Timeline
- Foreign Policy
- Medvedevs Foreign Policy: Nationalism and Pragmatism
- Foreign Policy under The New Russian President Dmitry Medvedev Is Expected to Remain Largely Unchanged from
- The Direction Set under His Predecessor Vladimir Putin.
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Long-Term Slowdown Still on The Cards
- The Boost to The Russian Economy Provided by Surging Energy Prices in The First Half of The Year Is Unlikely to Last
- beyond 2008.
- Table: Russia Economic Activity
- Balance of Payments
- Oil Surge to Delay Not Reverse Negative C/A Trend
- We Have Revised up Our Russian Current Account Forecasts to Take into Account The Surge in Global Oil Prices
- through The First Half of The Year, with The Surplus Now Expected to Climb to 7.5% of Gdp This Year.
- Table: Russia Balance of Payments
- Fiscal Policy
- Budget Surplus to Rise on Oil Revenues
- on The Back of Soaring Revenues over The First Seven Months of The Year, We Have Revised up Our Russian Federal
- Budget Surplus Forecast for 2008 to 6.1% of Gdp.
- Table: Russia Fiscal Policy
- Monetary Policy
- Inflation to Stay Elevated despite Central Bank Efforts
- despite Recent Moves by The Central Bank of Russia (Cbr) to Tighten Monetary Conditions, We Believe That Inflation
- Will Remain Elevated through The Medium Term.
Chapter 3: Bmi 10 Year Forecast
- The Russian Economy to 2017
- Growth to Slow as Net Export Surplus Slips Away
- over Our 10-Year Forecast Horizon, Russian Growth Is Expected to Slow Markedly to An Average Annual 4.6% between
- 2013 and 2017, down from 6.5% in The Previous Quinquennial.
- Table: Russia Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- Mega-Urban Regions
- Table: The Worlds 30 Largest Urban Agglomerations
- Table: The Worlds Richest Cities in 2020 by Gdp
- Table: The Worlds Fastest Growing Urban Areas by Population
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Table: Bmi Business and Operational Risk Ratings
- Institutions
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Outlook
- Table: Emerging Europe Fdi
- Table: Bmi Trade Ratings
- Table: Top Export Destinations (US$Mn)
- Operational Risk
Chapter 6: Key Sectors
- Automotives
- Table: Russia Autos Sector Historical Data and Forecasts
- Information Technology
- Table: Russias IT Sector Historical Data and Forecasts
Chapter 7: Global Assumptions
- Global Outlook
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities