Russia Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	1744-8824
Product Code	BMI00826

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Summary

High Oil Prices To Provide a Boon in 2008 The spike in global energy prices will provide a major boon for the Russian economy this year, best reflected in the country's balance of payments dynamics. In line with a revision to our Brent crude forecast to US$100/bbl for 008, we now expect the current account surplus to widen to 6.6% of GDP in 2008. It is important to note though, that while we now expect an expansion of the current account surplus for 008, we have by no means altered our view for a negative long term trend, which has been a key component of our core economic scenario for Russia. Indeed, we are still expecting the current account surplus to narrow steadily, falling to 3.9% of GDP in 2009 and further to 1.6% in 2010. We also are still forecasting for the current account to fall into deficit within our five-year forecast period, though we have pushed back the year we expect this to happen to 2011, when we expect a shortfall of US$3.3bn or 0.1% of GDP.

As we expected, outgoing Russian President Vladimir Putin is consolidating political power outside the presidency. While it has long been known that Putin would become prime minister under Medvedev, he has now also accepted the leadership of the United Russia Party. Becoming the chairman of United Russia will significantly enhance Putin's political power beyond the authorities of the prime minister's office. While being prime minister will accord Putin authority over the government's administrative apparatus, since United Russia holds 70% of the seats in the state duma, he will now also have effective control of the country's legislative branch. From a policy perspective, this underlines our core view that the transition to a new president will not signal a major shift in Russian government ideology.

The Russian economy shows few signs of slowing significantly in the medium term despite the tight global credit environment and elevated risks of recession and slowdown in the United States and eurozone, respectively. Indeed, according to preliminary data from the economy ministry, gross domestic product expanded by a robust 8.0% y-o-y (in real terms) in the first quarter, an acceleration from the 7.9% y-o-y increase seen over the same period a year earlier and down only slightly from the 8.1% full-year 2007 outturn. This reinforces our positive view for Russian real GDP growth this year and through the medium term. We maintain our forecast for real GDP to increase by an average 6.6% annually over our five-year forecast period, with the figure for 2008 expected to come in at 7.1%, followed by a 6.8% increase in 2009.

Newly appointed Prime Minister Vladimir Putin has stated that he will move to cut taxes in the oil sector so as to stimulate capital investment and spur production growth. Oil output growth has fallen into negative territory in the first quarter of 2008 raising concerns that production, which has stalled at 41.1mn tons per month since 2006 is set to drop markedly this year. While details of the tax reform have yet to be released, we are encouraged by this early initiative of the new government and are hopeful that it will spur renewed interest into the sector going forward.

Content

Executive Summary
- High Oil Prices to Provide A Boon in 2008
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Putin to Remain A Major Political Force
- We Reiterate Our View That Vladimir Putin Will Remain A Prominent Political Force in Russia over The Long Term
List of Tables
- Table: Russia Political Overview
- Foreign Policy
- Political Risks to Impact Investment Climate
- We Expect Political Ructions between Russia and The UK to Continue Impacting The Investment Climate for British
- Firms Operating in Russia over The Short Term
List of Tables
- Table: Russia-UK Ructions Timeline
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Economic Outlook Still Positive despite Spiralling Inflation
- We Hold to Our Positive Macroeconomic View for Russia with Real Gdp Growth Forecast to Average 6.6% Annually
- through to 2012
List of Tables
- Table: Russia - Economic Activity
- External Debt
- Strong Gdp Growth to Sustain Rising External Debt
- We Have Revised Our Long-Term Forecasts for Russian External Debt, Taking into Account Figures for End-2007 and
- New Growth Expectations for The Private Sector
List of Tables
- Table: Russia - Foreign Debt
- Exchange Rate Policy
- Rub: Revaluation in The Offing, Just Not Yet
- The Recent Decision by The Central Bank to Make Daily Interventions in The Foreign Exchange Market to Reduce
- Rouble Speculation Suggests That A Revaluation of The Currency against The Dollar-Euro Basket (Weighted at
- US$0.55/Eur0.45) Is off The Cards, at Least in The near Future
List of Tables
- Table: Russia - Exchange Rate Policy
- Balance of Payments
- Surplus Forecast to Increase in 2008
- with Our Brent Crude Oil Forecast Standing at US$100.00/Bbl for 2008 with Upside Risks, The Prospect for Russian
- Export Growth Is Looking The Brightest in Recent Years
List of Tables
- Table: Russia - Balance of Payments
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by
- Mildly Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversity through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- South to Benefit from Rising Food Prices
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete
- for Its Natural Resources
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential
- for Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade
- Embargo with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The
- Double Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
List of Tables
- Table: Bmi Business and Operational Ratings
- Institutions
- Infrastructure
List of Tables
- Table: Bmi Legal Framework Ratings
- Market Outlook
List of Tables
- Table: Emerging Europe Fdi
- Table: Bmi Trade Ratings
- Table: Top Export Destinations (US$Mn)
- Operational Risk
Chapter 5: Key Sectors
- Tourism
List of Tables
- Table: Russia Tourism Industry - Historical Data and Forecasts
- Infrastructure
List of Tables
- Table: Russia-Infrastructure Industry Forecast