Country Report Russia November 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 clear threat to Russia's 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 the deterioration in relations between Russia and the West gets worse depends on what happens next, beyond Georgia, including 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 around 4% per year in 2009-10, reflecting the impact of financial turmoil, lower commodity prices and weak energy sector production.
• Falling commodity prices, slowing demand growth and the fiscal tightening of the past few quarters will help to reduce inflationary pressures. However, the injection of liquidity into financial markets will have an inflationary impact.
• Although domestic demand growth will weaken, slower nominal export growth will reduce sharply the current-account surplus in 2009-10.

Monthly review

• Opinion polls have yet to indicate that the deteriorating financial situation has had much of an impact on the popularity of Mr Medvedev and MrPutin.
• In his first state-of-the-nation address, MrMedvedev proposed extending the presidential term from four years to six, and he threatened to station short-range missiles in Kaliningrad in response to US missile defence plans.
• Unrest is growing in the North Caucasus, fuelled by popular dissatisfaction with corrupt local elites and by rising Islamist militancy.
• The authorities are implementing the US$200bn financial rescue package, aimed at boosting domestic liquidity and helping banks and corporates to repay their external debt.
• The Russian Central Bank (RCB) has continued to intervene on a large scale to support the rouble, which nevertheless weakened against the US dollar by 14% between the end of July and late October.
• With the exception of investment and construction, macroeconomic data have yet to indicate a substantial deterioration in economic performance.

This report covers the following industry codes:
SIC Code: 60;49;10
NAICS Code: 52;22;212