Russia Business Forecast Report Q2 2008

Publication Date	March 2008
Publisher	Business Monitor
Product Type	Report
Pages	58
ISBN Number	1744-8824
Product Code	BMI00751

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Summary

Executive Summary: Putin to Remain in Control

We Believe That 2008 Will Be A Pivotal Year for Russia's Economic and Political Outlook. Beginning This Year, We Expect Russia to Shift Its Core Economic Priorities Away from Macroeconomic Stabilisation and toward Domestic Investment and Improving Standards of Living. This Will Have The Effect of Furthering The Trend of Declining Current Account and Fiscal Surpluses and Moving Economic Growth Away from The Trade Surplus to Increasing Domestic Demand. The Likely Election of Dmitry Medvedev as Vladimir Putin's Successor to The Presidency Will Only Serve to Reinforce The Government's Economic Policy Agenda. despite The Formal Change in Leadership in The Kremlin, We Expect Putin Will Maintain A Prime Decision-Making Position in The New Government as Prime Minister. Moreover, Medevedev Himself Has Shown Little Inclination on The Campaign Trail through Q108 to Deviate Substantially from The Existing Government's Platform.

It Is All but Certain That Dmitry Medvedev Will Be Russia's next President When Vladimir Putin Steps down from The Post in March. Though Medvedev Remains Largely An Unknown Quantity from A Policy Perspective, His Close Association with Putin Reveals That The Government's Direction Is Unlikely to Be Substantially Altered from The Succession. Indeed, with Putin Likely to Take over The Role of Prime Minister in The New Government, and with The Pro-Putin United Russia Party Dominating The December 2007 Parliamentary Elections, His Control of The Country's Federal Institutions Has Never The Russian Macroeconomic Environment Is Set for Some Major Changes Going Forward. First, We Expect The Country's Current Account Surplus to Flip into Deficit by 2010. at The Same Time, The Fiscal Surplus Will Be Eliminated. A Core Implication of This Is That The Upside Pressures on The Rouble Will Be Substantially Mitigated, Opening The Door for The Currency to Fully Float within Three Years. from Overall Economic Perspective, We Are Already Beginning to See The Shifts in Russia's Growth Dynamics, Which Will Underpin These Transitions. Gross Fixed Capital Formation and Domestic Consumption Levels Continue to Rise While Net Exports Fall, Helping to Bolster The Economy at A Time of External Sector Weakness. These Trends Will Help to Keep The Russian Economy Expanding at above % for The Foreseeable Future.

Russia's Business Environment Is Hampered by Poor Infrastructure, Rising State Protectionism in The Energy Industry and Weak Institutional Development, Which Has Contributed to An Endemic Corruption Problem and Limited Impartial Judicial Oversight. There Are Signals That The Government Is Taking Some of These Issues Seriously, but We Do Not Expect Any Major Changes to Occur within The Short Term. The Size of The Country and The Limited Capacity of Government Institutions Mean That Any Policy Initiatives Will Take Years to Have Any Meaningful Effect.

Content

Executive Summary
- Putin to Remain in Control
Chapter 1: Political Outlook
- Swot Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Election Cycle Unlikely to Impact Policy
- United Russia's Dominance of Parliamentary Elections Held on December 2 Reinforces Our View That President
- Vladimir Putin and Kremlin-Backed Institutions Will Continue to Dominate The Russian Domestic Policy Agenda
- over The Long Term.
Chapter 2: Economic Outlook
- Swot Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Investments and Consumption to Buoy Growth
- We Have Revised Upward Our Real Gdp Growth Forecasts for Russia and Are Now Anticipating Economic Expansion
- to Average 6.4% until 2012.
- Table: Economic Activity
- Balance of Payments
- Current Account to Slip into Deficit by 2010
- We Have Revised Our Long-Term Current Account Forecasts for Russia, Taking into Account A Faster than Expected
- Acceleration of Import Growth in 2007.
- Table: Balance of Payments
- Exchange Rate Policy
- Rouble to Free Float by 2010
- Our Core View Is That The Russian Rouble Will Be Freely Floating by 2010.
- Table: Exchange Rate Policy
- Monetary Policy
- Inflation Problem to Remain despite Tightening
- The Recent Moves to Tighten Monetary Policy by The Central Bank Will Do Little to Alleviate The Underlying Inflationary
- Conditions in Russia and We Maintain Our End-Year 10.2% Y-O-Y Inflation Forecast.
- Table: Monetary Policy
- Investment Climate
- Key Investor Themes: Opportunities and Risks
- Banking Sector
- Banking Sector: Plenty of Room for Growth
- The Russian Banking Sector Is Expected to Remain A Strong Growth Story over The Long Term, with Rising Household
- Wealth and Corporate Expansion Initiatives Underpinning Solid Asset Expansion.
Chapter 3: Special Report
- Looking beyond 2008
- The Future of The World, in Three Acts Us: The Rebalancing Act
- Unwinding The Imbalances
- We Believe That A Substantial, Multi-Year Shift in The Us External Accounts Is under Way.
- China: What If We're All Wrong?
- Our Core Scenario for China
- We Are Retaining Our Positive Headline Growth Projections for China across The Forecast Period to 2012, with Our
- Expectations of The Continued Success of The Urbanisation Process and Export-Driven Growth Model Underpinning
- Our Assumptions.
- Japan: Immigration Key to Long-Term Growth
- Demographic Woes Portend Long-Term Decline
- Immigration Remains The Only Realistic Way That Japan Can Overcome Its Long-Term Economic Challenges.
Chapter 4: Business Environment
- Swot Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook - Q2 2008
- Table: BMI Business and Operational Risk Ratings
- Institutions
- Table: BMI Legal Framework Ratings
- Infrastructure
- Table: Russia Fdi
- Market Orientation
- Table: Emerging Europe Fdi
- Table: Top Export Destinations (Us$Mn)
- Table: BMI Trade Ratings
- Operational Risk
Chapter 5: Key Sectors
- Food & Drink
- Executive Summary
- Table: Russia Mgr Value Sales by Format - Historical Data and Forecasts (Us$Bn)
- Telecommunications
- Executive Summary
- Table: Russian Telecoms Sector Internet Historical Data & Forecasts