Russia Business Forecast Report Q1 2009

Publication Date	November 2008
Publisher	Business Monitor
Product Type	Report
Pages	67
ISBN Number	not applicable
Product Code	BMI03050

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Growth To Slow As Financial Market Risks Build

The severe challenges which the Russian banking sector faced in September and October 2008 will not be alleviated in the short term. Refinancing external debt liabilities will continue to pose existential problems for most banks as credit conditions globally will remain constricted beyond 2008. While the government and central bank will likely provide enough liquidity and aid to prop up most of the major firms including Sberbank and VTB, the outlook for smaller regional players is far less certain. In the event of a sudden loss of domestic confidence in the Russian banking sector, a systemic crisis would be likely. The resulting uncertainty governing domestic capital markets poses serious economic and political risk challenges. While credit growth is likely to come in sharply, negatively impacting private consumption, the concomitant decline in consumer confidence is likely to lead to public dissatisfaction. To be sure, the government will lose some popularity as a result, though we stress that an expected expansionary fiscal policy should go some ways to mitigating the political impact of the downturn.

As the macroeconomic impact of the ongoing financial crisis unfolds in 2009, we expect the Russian government to continue taking a very proactive economic policy role. Further capital injections and bailout packages can be expected, alongside an increasingly expansionary fiscal policy. This should go some way to shoring up popular support amid a sharp economic downturn. In terms of foreign policy, Russia's August 7 2008 invasion of Georgia will continue to cause tensions in its bilateral relationships with the EU, US and several of its neighbour states through the medium term. This has prompted a reappraisal of the country's political risk profile especially as it will likely delay the achievement of core foreign policy objectives including membership in the WTO and OECD as well as a partnership pact with the EU. We stress, however, that elevated tensions do not mean a return to Cold Warera policies or tactics and that the core risks apply more to the former Soviet region than Russia's strategic position globally.

We have slashed our growth forecasts for Russia to take into account a rapidly decelerating global economy, falling oil prices and tightening credit conditions in the domestic banking sector. While a robust H108 performance will ensure that growth in 2008 remains relatively strong at 5.9%, economic expansion is expected to fall markedly to an 11year low of 3.6% in 2009. Recovery can be expected in 2010, though we stress that a return to the 2007 high of 8.1% growth is unlikely, with the annual increase in real GDP forecast to average 5.9% between 2010 and 2013.

Russian companies facing problems refinancing shortterm external debt will be eligible to tap US$50bn in government funds through state development bank VEB. The mechanism, introduced in early October, is designed to protect firms from defaulting as they attempt to rollover debt amid tightening credit conditions. The government has been particularly active in offering support to domestic corporates amid the current financial crisis. Alfa Bank has already requested a US$400mn subordinated loan from VEB, while staterun companies have been quick to bailout failing firms including investment bank Kit Finance and Syvaz Bank.

Content

Executive Summary
Growth To Slow As Financial Market Risks Build
Chapter 1: Political Outlook
- Swot Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Proactive Economic Policy To Continue
- As The Macroeconomic Impact Of The Ongoing Financial Crisis Unfolds In 2009, We Expect The Russian Government
- To Continue Taking A Very Proactive Economic Policy Role
List Of Tables
- Table: Russian Political Overview
Foreign Policy
Foreign Tensions To Remain
Russias August 7 Invasion Of Georgia Will Continue To Cause Tensions In Its Bilateral Relationships With The Eu, Us
And Several Of Its Neighbour States Through The Medium Term
Chapter 2: Economic Outlook
- Swot Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Growth To Fall To 3.6%
- We Have Slashed Our Growth Forecasts For Russia To Take Into Account A Rapidly Decelerating Global Economy,
- Falling Oil Prices And Tightening Credit Conditions In The Domestic Banking Sector
List Of Tables
- Table: Economic Activity
- Economic Activity
- Oil Shock Scenario: Negative Impact To Span Economy
- Russian Economic Growth Is Expected To Remain Highly Correlated To Global Commodity Prices Through The Long
- Term
- Balance Of Payments
- Current Account Surplus To Collapse
- We Have Significantly Reduced Our Current Account Surplus Forecasts For Russia To Take Into Account An
- Increasingly Negative Outlook For Global Commodities Prices
List Of Tables
- Table: Balance Of Payments
- Exchange Rate Policy
- Rouble To Depreciate Further
- We Expect The Russian Rouble To Be Devalued Further Against The DollarEuro Basket It Is Managed Against As
- Fundamental Market Pressures Remain To The Downside Over The Medium Term
List Of Tables
- Table: Exchange Rate Policy
- Investment Climate
- Banking Sector: Potential For A Systemic Crisis
- The Severe Challenges The Russian Banking Sector Faced In September And October Will Not Be Alleviated In The
- Short Term
- Regional Outlook
- Strategic View: Demand Destruction Key For Negative Outlook
- A Significant Demand Slowdown In Both The Us And Eurozone In 2009 Will Dramatically Impact The Economies Of
- Central And Eastern Europe
- Chapter 3: 10 Year Forecast
  - The Russian Economy To 2018
  - Growth To Slow As Net Export Surplus Slips Away
  - Over Our 10Year Forecast Horizon, Russian Growth Is Expected To Slow Markedly To An Average Annual 4.2%
  - Between 2014 And 2018, Down From 5.5% In The Previous Quinquennial
List Of Tables
- Table: LongTerm Macroeconomic Forecasts
- Chapter 4: Special Report
  - Why The Us Can Remain World Superpower
  - Wealth Is Shifting East
  - The Uss Current Financial Woes Will Not Necessarily Undermine Its Position As A Global Superpower
List Of Tables
- Table: Geopolitical Power Index
- Chapter 5: Business Environment
  - Swot Analysis
  - Bmi Business Environment Risk Ratings
  - Business Environment Outlook
List Of Tables
- Table: Bmi Business And Operational Risk Ratings
- Institutions
List Of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Outlook
List Of Tables
- Table: Europe, Fdi Annual Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Operational Risk
- Chapter 6: Key Sectors
  - Pharmaceuticals
  - Executive Summary
  - Bmi Forecasts That The Prescription Generics Market Will Reach Us$7.7bn At Consumer Prices By 2012, Equivalent
  - To 27.9% Of Total Pharmaceutical Expenditure
List Of Tables
- Table: Russias Generics Market Data And Forecasts, 20062012
- Petrochemicals
- Executive Summary
- Bmi Research Finds That The Russian Petrochemical Sector Is Likely To Outstrip Overall Economic Growth In 2008
List Of Tables
- Table: Russia Petrochemicals Sector Forecasts
- Chapter 7: Bmi Global Assumptions
  - Global
List Of Tables
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities