Country Report Russia December 2008

Outlook for 2009-10

• The ruling tandem? between the president, Dmitry Medvedev, and the prime minister, Vladimir Putin, is facing a test amid efforts to prevent the global and Russian financial maelstroms from plunging the real economy into a crisis.
• A failure to prevent a crisis in the real economy would result in a threat to Russias hitherto stable political scene.
• The international fallout from the conflict between Russia and Georgia has been contained. However, poor relations with the West, reflecting conflicts of interest in a number of areas, will persist.
• Whether relations between Russia and the West deteriorate even further depends on crucial issues such as NATO enlargement. It is as yet unclear how forcefully the next US president, Barack Obama, will push on such issues.
• Real GDP growth is forecast to slow to an average of below 4% per year in 2009-10, reflecting the impact of financial turmoil, lower commodity prices and weak energy sector production. The possibility of a steep rouble devaluation now presents the main risk to macroeconomic stability.
• Falling commodity prices, slowing demand growth and the fiscal tightening of the past few quarters will help to reduce inflationary pressures. However, rouble depreciation will have an inflationary impact.
• Domestic demand growth will weaken, but the impact of much lower oil prices on exports will reduce sharply the current-account surplus in 2009-10.

Monthly review

• MrPutin has ruled out a return to the presidency before the next scheduled election in 2012, amid speculation that changes to the constitution to lengthen the presidential term could have been used to justify an early vote.
• Talks have been resumed with the EU on a new long-term partnership agreement, after the EU froze the talks in reaction to the Russian-Georgian conflict in August.
• The Russian Central Bank (RCB) has several times widened the rouble trading corridor, while continuing to spend substantial amounts of foreign-exchange reserves to try to prevent a large rouble devaluation.
• The government has announced a package of measures to support the real economy amid the financial turmoil. The package includes cuts in corporate and other taxes, faster amortisation schedules and support for small business.
• Foreign-exchange reserves fell by US$34.7bn in the first three weeks of November, taking the total decline since August to US$148bn.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52