Country Report Russia November 2009

Outlook for 2010-11

• Although Russians are dissatisfied with the economic situation, this has not yet affected significantly the popularity of the leadership. The risk of an eruption of widespread, non-localised social unrest is relatively low.
• The decision by the US president, Barack Obama, to abandon plans for an anti-ballistic missile defence system in eastern Europe could open the way for a significant improvement in US-Russian relations, especially on arms control.
• The government is extending considerable help to the economy. Reflecting the economic downturn, the budget has swung into a large deficit, estimated at 7.7% of GDP in 2009. This is expected to narrow to 5-6% of GDP in 2010-11.
• Since April 2009 the Russian Central Bank (RCB) has cut the key refinancing rate by a total of 350 basis points. However, although further cuts are likely, a significant revival in bank lending is some way off.
• The fall in real GDP is estimated at 7.8% in 2009. The delayed impact of the government's stimulus package, better external conditions and lower interest rates will underpin a return to growth, of 2.5% in 2010 and of 4% in 2011.
• Reduced domestic demand and lower oil prices than in recent years will help to contain inflationary pressure.

Monthly review

• The three opposition parties briefly walked out of parliament in October, alleging electoral fraud in local elections. United Russia, the party of power, maintained or extended its grip in the 75 regions that held elections.
• As part of expanding ties, the prime minister, Vladimir Putin, visited China in October, where he signed trade and investment deals worth US$4bn.
• The RCB lowered its refinancing rate in late October to 9.5% from 10%, the eighth cut in 2009.
• In October the draft 2010 federal budget was approved by parliament in a first reading. The plans envisage a reduction in the budget deficit to 6.8% of GDP in 2010, from 8.3% in 2009, and a further reduction in 2012, to 3% of GDP.
• According to estimates from the Ministry of Economic Development, seasonally adjusted real GDP increased by 0.6% quarter on quarter in July-September 2009, although it was still down by 9.4% year on year.
• Year-on-year consumer price inflation fell to a two-year low of 9.7% in October. Core inflation was down to 7.6% in January-October.
• The current-account surplus rose to US$15bn in the third quarter of 2009, according to RCB figures, from US$17bn in the first half. At US$32bn in January-September, the surplus was one-third of its level a year earlier.

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